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Report Fraud, Waste and Abuse

Certain issues in HUD’s Public and Indian Housing (PIH) Programs have long been a source of concern. In order to better leverage our body of work in this area, we will focus our future work products regarding this program to spotlight these issues and develop solutions.  This “Pathway to Improvement” will focus OIG attention on areas that we and others have reported on over the years and develop and carry out a set of strategies to provide HUD and the Congress a clearer path to correct these long-standing issues that have resisted correction in the past.   The following are the areas of continuing concern:

Our goal is to foster positive change that will improve the management of the nation’s public and assisted housing and ultimately the lives of the people who benefit from these programs. This will be a long term and continuing process that will require HUD to put forth innovative solutions and the OIG stands ready to assist where appropriate. In addition, the PHAs themselves and the organizations that represent them can play a role in addressing many of our concerns. Working together, we can all help to solve many of these recurring problems.

Ethics/Governance Structure

As our work highlights, PHAs often operate with little oversight and are vulnerable to ethical lapses that attract media attention. PHAs operate under State law and, accordingly, rules and requirements for ethics programs vary from State to State. PHA executive directors and other officials’ activities should be overseen by their respective PHA boards, but we have seen many situations where the board exercises little or no oversight and the board members themselves have few or no qualifications to effectively discharge their responsibilities. Our investigative case work over the years has shown that even board members sometimes improperly use the resources of the PHA for personal gain.

PHADA

Industry groups can play a role in fostering an atmosphere of ethics and accountability for PHA officials who are entrusted to oversee significant taxpayer funds.  We note that one organization, the Public Housing Authorities Directors Association, has developed suggested codes of ethics for both PHA executive directors and commissioners. While we cannot endorse any particular organization, we support initiatives such as these and will be offering our suggestions on strengthening these documents. This is an area that will be addressed in our fraud prevention program.  One part of this program involves developing, or updating, a series of program integrity bulletins. The bulletins cover a wide range of PHA activities, including ethics, and are designed to assist PHA officials and commissioners in properly discharging their duties. 

Housing Quality Standards

We have performed numerous audits at PHAs of the Housing Choice Voucher Program that focused on whether the units met applicable physical quality standards. In response to our audit work in this area, HUD has been working to revise its standards and to develop a uniform inspection protocol to provide for improved oversight of the physical condition of the rental units that are participating on the program.

Building

We issued a nationwide internal audit in May 2008 and found that HUD did not have adequate controls to ensure that its Section 8 housing stock was in material compliance with housing quality standards. HUD's lack of knowledge regarding the condition of its Section 8 housing stock resulted in inflated performance ratings for public housing agencies administering the program. Consequently, HUD routinely rated some agencies as being high performers when a significant percentage of the units they administered were in material noncompliance with housing quality standards.

Our recommendations included development of a physical inspection system for the Housing Choice Voucher program within three years from the issuance of our report. While HUD has been working on this system and has tested protocols for conducting the inspections, HUD does not expect to implement the inspection system for another two years. In the meantime, our external audits of PHAs continue to report significant percentages of units that do not meet HUD’s housing quality standards. Recent audits have also shown weaknesses related to qualifications and oversight of contracted inspectors.

Improper Payments

Our latest audit of HUD’s Compliance with the Improper Payments Elimination and Recovery Act of 2010 (IPERA) was issued on March 15, 2013. We reported that HUD generally complied with IPERA and while we also reported that HUD did not meet all of the law’s objectives, our findings related to the HUD offices other than PIH and the report contained no recommendations for PIH.

Nevertheless, HUD rental housing assistance programs (RHAP), which includes PIH and multifamily housing programs continue to be an OMB-designated high error program. Moreover, 32 percent of HUD’s budget is allocated for RHAP, thus subjecting HUD to considerable financial risk.  In fiscal year 2012, RHAP improper payments increased to over $1.2 billion (from $959 million in fiscal year 2011), as reported in HUD’s fiscal year 2012 Agency Financial Report.  OIG will continue to monitor this area and assess whether last year’s improper payment increase was a one-time event or the start of a continuing trend.

Issues Related to the Performance of Executive Directors and other Officials and Their Movement from One PHA to Another

Over the years, the OIG has noted the movement of PHA officials from one PHA to another. In particular, situations were noted where an individual had performed poorly, or was even caught engaging in illegal activity, only to emerge at a different PHA. This raises questions about the due diligence carried out by the hiring PHAs to fully vet candidates for critical positions, particularly the executive director. Except in the limited situations where HUD has taken over a PHA, HUD does not play a role in overseeing PHAs’ hiring of their key officials, because such hiring is done pursuant to State law applicable in the particular jurisdiction.  

Moreover, there are no required professional certifications that individuals must possess in order to qualify for key positions. This makes it all the more critical for PHA boards to play an active role in the hiring process.

The OIG is currently investigating more than two dozen cases where PHAs have hired individuals that have committed frauds or serious abuses at previous PHA jobs. Ultimately, PHAs and their governing boards must take responsibility for fully vetting candidates for key positions.  To assist in this effort, and as part of the OIG’s fraud prevention strategy, we are working with industry groups to develop an integrity bulletin that specifically addresses recruiting and hiring by PHAs.

Moving to Work

Moving to Work (MTW) is a demonstration program for public housing agencies (PHA) that is intended to provide PHAs the opportunity to design and test innovative, locally-designed strategies that use Federal dollars more efficiently and effectively, help residents find employment and become self-sufficient, and increase housing choices for low-income families. MTW gives PHAs exemptions from many existing public housing and voucher rules and more flexibility with how they use their Federal funds. The program was authorized in 1996 legislation and implemented in 1999. It has been in “demonstration” status since then. Industry groups and others have pushed for expansion of the program.

The OIG has expressed its continued concerns about the program over the years.  The demonstration program, as designed, was originally intended for high performing PHAs yet HUD has admitted substandard performers for participation into the program. A Government Accountability Office (GAO) report issued in April 2012 concluded that HUD has not identified standard performance data and indicators needed to evaluate the MTW program. In our opinion, performance indicators are critical to demonstrating program results and ensuring that the program’s statutory objectives are met.

HUD needs to implement GAO’s recommendations and develop performance measures and collect data for all PHAs to develop baselines to measure statutory compliance and effectiveness. Ideally, this should occur before decision-makers conclude whether it should be continued or expanded.  HUD also needs to ensure that the selection and approval process is objective and not subject to abuse as we have reported on in the past. 

PIH Program Oversight and Enforcement

HUD has challenges in monitoring its PIH programs since it relies a great deal on electronic monitoring through PHAs’ self-assessments and other self-reported information collected in HUD’s information systems.  Until HUD is able to modernize its outdated systems and more effectively target its resources, it will continue to be constrained in its effectiveness to oversee the proper use of funds by the PHAs. In addition, we have observed reluctance by HUD to take enforcement actions.  Often the attitude displayed by the Department in response to problems that come to the fore is the emphasis that public housing is a locally administered program.  It takes this position despite the fact that it is regularly criticized for not having better control over the PHAs.

Both the OIG and the GAO have reported on findings in oversight weaknesses over the years. For example, GAO reported in 2009 that HUD’s oversight processes could be more focused on identifying potential inappropriate use or mismanagement of public housing funds. In addition, we have long been concerned about HUD’s reliance on PHAs’ self-reported information to monitor the program. The resulting assessments are not always accurate and there remains some question as to the reliability of the information contained in PIH systems.  The OIG continues to focus significant audit and investigative resources on PIH oversight and enforcement issues.

Procurement and Contracting

Our external audits and investigations at PHAs often find instances where the PHAs violate HUD’s and their own procurement requirements. For example, we routinely find that PHAs will bypass controls designed to ensure a fair and competitive procurement process, award contracts to other than the low bidder with no justification, pay for construction work that was not actually performed, or even illegally accept bribes or kickbacks in exchange for contract awards. While we cannot quantify the extent to which procurement violations have occurred, we nevertheless have seen enough blatant examples for this to be a cause for concern.

Public Housing

PHA procurement and contracting will continue to be a focus of our audit work at PHAs. More importantly, to help foster long-term improvement, this is another area where we will offer our experience and expertise and work with industry groups. We are developing an integrity bulletin specifically relating to procurement. Other bulletins also touch on procurement and contracting issues.

Questionable/Ineffective Use of Administrative Funds

HUD allows a PHA to use up to ten percent of its Capital Fund, without support, for administrative costs. Once this fee is “earned” by the PHA, any amounts in excess of the PHA’s costs become “de-Federalized” and are available for whatever purpose the PHA desires. We have found instances in our audits of extravagant spending from these funds that did not appear to be within the PHA’s statutory mission. As a result of HUD’s policy allowing this fee usage, our audit findings were not sustained by the Department and thus our recommendations not instituted.

In a related audit, we reviewed HUD’s oversight of the Housing Choice Voucher program’s fee-for-service system. The audit was prompted by our prior work, during which we noted that a PHA charged management and bookkeeping fees far in excess of the applicable overhead expense. HUD had not adequately supported or reassessed the reasonableness of the fee-for-service amounts or monitored the amounts charged. HUD data suggest that other PHAs may have overcharged the program by more than $5 million in management fees and more than $1 million in bookkeeping fees.  Similar to public housing, these excess fees are considered to be nonfederal funds legally available for any purpose.

We have also been concerned for some time about the extent to which some PHAs use outside legal counsel. This issue was particularly egregious at one PHA where over $30 million was paid for outside legal services provided by 15 law firms during a three-year period.  Furthermore, we remain concerned with HUD’s oversight of PHAs’ expenditures for lobbying the executive or legislative branches of the Federal government and whether public housing funds were inappropriately used.

Receiverships

There are two basic types of receiverships: administrative and judicial. Administrative receivership is a process whereby HUD declares a PHA in substantial default of its Annual Contributions Contract, and takes control of the PHA. HUD appoints one or more HUD staff to work on-site at the PHA and manage and operate the PHA's housing operations and conduct the affairs of the PHA.  Judicial receiverships are established, monitored and supervised by federal courts. As of May 2013, there were six administrative and two judicial receiverships.

A September 2012 OIG audit relating to the East St. Louis PHA receivership found that HUD did not effectively oversee and manage the receivership of that PHA.  Specifically, it did not have an adequate structure in place for its staff and did not develop a receivership plan specific to the PHA.

Some PHAs have remained under receivership for long periods of time. An August 2011 OIG evaluation report noted that since 1979, there have been 22 PHAs placed under receivership, either by HUD or the Federal courts.  Fifteen PHAs (eleven administrative and four judicial) had been returned to local control.  As of February 2011, seven PHAs had been under receivership between 6 and 26 years with an average of 14 years.  PHAs under judicial receiverships had remained in that status for an average of 17 years. We have found instances where problems continued for years after the PHAs were under HUD control, notably at the East St. Louis and New Orleans housing authorities.