We audited certain portions of the U.S. Department of Housing and Urban Development’s (HUD) multifamily housing programs as part of our fiscal year 2013 annual audit plan, based on an auditability study that we conducted, which identified potentially significant risk factors in its McKinney Act bond refund program.  The objectives of the audit were to determine whether HUD properly enforced requirements that regulated the application of automatic adjustment factors to Section 8 rents for projects that had bond refund savings to prevent excessive rents and whether adjustments to receivables due to HUD from bond refunds were properly supported.

There were violations relative to HUD’s calculation of rents using automatic annual adjustment factors for bond-refunded projects and justification and support for writeoffs of receivables due to HUD from bond refunds.  Specifically, HUD paid more than $2.6 million in excessive Section 8 rents due to a pattern of violations, which would indicate the existence of excess rents beyond the projects reviewed during the audit and similar to violations reported in past reviews.  More than $2.7 million in questionable writeoffs of receivables due to HUD for bond refund savings were also identified.  The amount included more than $2.6 million, which HUD wrote off without proper justification, and more than $139,000 for which HUD could not locate or provide proper documentation to show whether the writeoff was justified and supported.  We also identified the release of more than $143,300 in trust fund balances to entities outside HUD without proper support.  These conditions occurred primarily because the Office of Housing had not developed and implemented adequate monitoring of the bond refund program to ensure compliance with requirements.

We recommend that the Deputy Assistant Secretary for Multifamily Housing develop and implement procedures for (1) monitoring the calculation of annual rent increases for Section 8 projects and the remittance of trust fund balances; and (2) ensuring requests made by Housing for adjustments to bond receivables are in accordance with requirements.  In addition, we recommend that the Deputy Assistant Secretary initiate actions needed to ensure the enforcement of program requirements and the proper resolution of more than $2.7 million in questioned costs.