We initiated a review of the U.S. Department of Housing and Urban Development’s (HUD) oversight of the Housing Choice Voucher program’s fee-for-service system because it was included in our annual audit plan, prompted by a prior external audit, during which we noted that a housing agency charged management and bookkeeping fees far in excess of the applicable overhead expense while following HUD’s fee-for-service requirements. Our overall audit objective was to determine how HUD arrived at the fee-for-service management and bookkeeping fee limits and whether the methodology and monitoring of these fees appeared reasonable.

HUD did not adequately support or reassess the reasonableness of the fee-for-service amounts or monitor the amounts charged. We reviewed three additional housing agencies and found no indication that they defederalized administrative fees in excess of actual costs; however, HUD data suggest that other housing agencies may have overcharged the Section 8 program by more than $5 million in management fees and more than $1 million in bookkeeping fees.

As a result, we recommend that the Deputy Assistant Secretary for Public Housing and Voucher Programs in coordination with the Real Estate Assessment Center (Center) establish and implement procedures to reassess the safe harbor percentage and rates periodically to ensure that they are reasonable, and retain the documentation justifying the calculation of the percentage and rates. In addition, HUD should assess the feasibility of requiring the agencies to periodically justify and retain documentation showing the reasonableness of using the maximum rates, or lower them as appropriate. We also recommend that HUD (1) develop and implement automated controls to the Subsystem to check that housing agencies nationwide do not charge excessive management and bookkeeping fees, and (2) follow up on the largest discrepancies identified and reassign excessive defederalized funds to the program if the housing agencies cannot provide HUD with a reasonable explanation for the discrepancies.