We audited the U.S. Department of Housing and Urban Development (HUD) to determine whether HUD had adequate oversight of the physical condition of the public housing units that converted to non-Federal Housing Administration (FHA)-insured project-based vouchers (PBV) under RAD.
We found HUD needs to improve its oversight of the physical condition of converted projects. Before the implementation of its PBV monitoring pilot program, HUD performed limited monitoring of RAD PBV projects. HUD also did not have a standardized process for monitoring the projects for compliance with its requirements. Additionally, for converted units that were PHA owned, HUD did not consistently receive required housing quality standards (HQS) inspection reports.
These conditions occurred because HUD did not specifically target converted projects for review. It also did not have a system to collect and maintain information about the physical and financial condition of RAD PBV projects. Instead, HUD relied on the contract administrators (PHAs) to oversee the converted projects. Additionally, HUD did not have a protocol or procedures for its field offices to ensure that HQS inspection reports for PHA-owned projects had been received and reviewed, as applicable, before HUD eliminated the requirement in June 2024.
As a result of HUD’s limited monitoring and lack of a system to collect and maintain data, HUD did not have information to assess whether the contract administrators effectively performed their oversight responsibilities of ensuring that (1) families resided in units that were decent, safe, and sanitary; (2) the converted projects’ reserve for replacement accounts were sufficiently funded to address extraordinary maintenance, repair, and replacement of capital items; and (3) project owners’ withdrawals from reserve accounts were appropriate. When we inspected a sample of RAD PBV units from 28 converted projects associated with three PHAs, we found that more than 74 percent of the units failed to meet HQS. Further, based on our calculations, the reserve for replacement accounts for 12 of the 28 projects were underfunded. Therefore, unless HUD specifically selects projects for review, it is unable to adequately monitor the long-term sustainability of these projects.
We made several recommendations to HUD to improve its oversight of projects converted under RAD. Specifically, we made recommendations related to (1) targeting projects for review and developing policies and procedures for monitoring, (2) reviewing reserve for replacement accounts to ensure sufficient account balances and compliance with applicable HUD requirements, (3) implementing a process to ensure reserve for replacement requirements in HUD’s business documents are consistent for converted projects, and (4) collecting data on projects’ reserve for replacement accounts to support the Office of Field Operations’ monitoring activities. We also made a recommendation for HUD to provide inspection reports showing that units meet HUD’s current physical condition standards.
Recommendations
Public and Indian Housing
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Status2025-CH-0002-001-AOpenClosed
Implement procedures and controls for targeting non-FHA-insured RAD PBV projects to monitor the physical conditions and reserve for replacement accounts.
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Status2025-CH-0002-001-BOpenClosed
Implement procedures for monitoring property owners’ reserve for replacement accounts for compliance with HUD’s requirements, using reserve for replacement account data collected on projects from PHAs.
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Status2025-CH-0002-001-COpenClosed
Provide inspection reports for the units identified in this report that failed to meet HQS showing that the units and associated buildings meet HUD’s current physical condition standards.
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Status2025-CH-0002-001-DOpenClosed
Implement a policy to ensure that monitoring of RAD PBV projects includes, at a minimum, a review of the accuracy of the reserve for replacement account balances and compliance with HUD’s physical condition and inspection requirements.
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Status2025-CH-0002-001-EOpenClosed
Review the reserve for replacement accounts for the 12 underfunded projects to ensure that the account balances are maintained in accordance with the applicable HUD requirements and executed HUD business documents and require owners to fully fund any underfunded reserves, as applicable.
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Status2025-CH-0002-001-FOpenClosed
Review the reserve for replacement accounts for the 14 project owners that did not make annual adjustments for inflation, as identified in the capital needs assessment, to determine whether the account balances are sufficient to meet anticipated capital needs. If the account balances are not sufficient, HUD should require the owners to appropriately fund the accounts.
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Status2025-CH-0002-001-GOpenClosed
Implement a plan to review the reserve for replacement accounts for all RAD PBV projects to ensure that reserve for replacement accounts are appropriately funded.
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Status2025-CH-0002-001-HOpenClosed$1,005,913.00Questioned Costs
Recommendations with questioned costs identify costs: (A) resulting from an alleged violation of a law, regulation, contract, grant, or other document or agreement governing the use of Federal funds; (B) that are not supported by adequate documentation (also known as an unsupported cost); or (C) that appear unnecessary or unreasonable.
Obtain documentation from the PHAs to support that more than $1 million in withdrawals from the eight reserve accounts complied with HUD’s requirements or require the project owners to reimburse the reserve accounts for the unsupported withdrawals.
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Status2025-CH-0002-001-IOpenClosed
Implement a process, in conjunction with the Office of Recapitalization, to ensure that the reserve for replacement requirements in HUD’s business documents, such as the RAD conversion commitment, HAP contract, and operating agreement, are consistent for converted projects.
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Status2025-CH-0002-001-JOpenClosed
Collect data on projects’ reserve for replacement accounts to support the Office of Field Operations’ monitoring activities.