Uh oh. Finances at these HUD programs are like a house of cards

Financial accounting is so iffy at two Housing and Urban Development programs, the inspector general issued an alert. HUD can’t figure out improper payments in these programs. Hasn’t been able to for years. Won’t be able for years more. For details, the Federal Drive with Tom Temin talked with Deputy IG Stephen Begg.

Interview Transcript: 

Tom Temin So what did you find in which programs that caused you to issue a management alert? That’s more than just issuing an IG report or audit.

Stephen Begg That’s right. The management alert is essentially a short report that our inspector general uses to raise issues of significant deficiencies or risks immediately to HUD Secretary or deputy secretary. And the issue raised here is simply that HUD needs to do more to protect taxpayer funds from being misspent in its two largest programs, the two programs that issue our rental assistance programs and the law that’s out there requires federal agencies, as you know, time to examine their programs that are susceptible to making improper payments and then take action to mitigate that risk so that taxpayer funds aren’t misspent. Those improper payments can come in the form of over or underpayments payments made to the wrong people or businesses. Duplicate payments and in the worst cases are payments made in fraud schemes that go to people who don’t deserve them.

Tom Temin Now these are rental assistance program. And what was the other one?

Stephen Begg It’s two rental assistance programs. So, these are the largest programs that HUD uses to assist millions of households across the country in making their monthly rent payments. They come in two variations. One where HUD works with housing authorities or contractors to provide households with vouchers where they have the option to work with any landlord of their choosing in finding housing. And the other where HUD works directly with landlords to provide assistance to entire buildings or projects.

Tom Temin So these are payments both to individuals in some cases, or to the housing operators or the landlords. In other cases.

Stephen Begg The payments end up going through participants. So, housing authorities and contractors directly to the landlords, which is part of the challenge of making sure that they’re proper. There are many different stages of them. And so, tracking the payments and verifying that they’re accurate down to the ground level. It is really the challenge.

Tom Temin Right? These are not quite like programs, say at Labor Department where the funds go in bulk, so to speak, to the states. And then the states administer the programs. These are between HUD and local housing authorities and landlords.

Stephen Begg Yeah. So, there are multiple tiers. Payments are made from HUD to housing authorities or to contract administrators. And then those entities would then make payments down to landlords. So, testing the accuracy and appropriateness of those payments at both levels has been a challenge for HUD for many years.

Tom Temin Yeah. To trace the money from the Treasury down to who owns the house, I guess can be pretty complicated. Give us the extent of what you found in terms of dollars and possible improper payments.

Stephen Begg Sure. So, in terms of size in 2016, the funds that went through these two payments totaled more than $30 billion. In 2023 that amount has grown to more than $45 billion. And you know, our office and the Government Accountability Office have been identifying these programs as susceptible to improper payments for many years. Back in 2000, the number of estimated improper payments in the programs by HUD’s account was $3.2 billion. GAO labeled the program as high risk in 2001, in light of finding that there were significant opportunities for HUD to reduce overpayments in the program. And then in 2016. The last time HUD was able to estimate how many improper payments happened in these programs, they estimated that $1.7 billion potentially had been misspent or was unable to be verified. We’ve been stressing for several years in our annual report on HUD’s top management challenges that it really needs to address improper payments in these two huge rental assistance programs, which account for roughly two thirds of all expenditures across HUD.

Tom Temin We’re speaking with Stephen Begg. He is deputy inspector general of Housing and Urban Development. And your report said that they have not, as you just described, haven’t been able to really know their improper payment levels, which is a way of not really being able to account for the program at all in some sense since 2016, but that they don’t feel that they could do so until 2027. What is that mechanism?

Stephen Begg That is in large part the reason that our office issued this management alert. You know, we complete an annual audit of HUD’s compliance with the law that requires them to test and estimate improper payments in their programs. And this year, we learned that for the first time that HUD was not believing they would complete those testing exercises until 2027. We did not feel that we should wait to alert HUD leadership of that risk until our annual report came out. And so, in our management letter, we identified two areas where we believe HUD leadership needs to intervene and the first is a lack of planning and coordination across HUD program offices. There are multiple offices that have inequities here. There are different programs that administer the two rental assistance programs we talked about, but HUD finance offices and its IT offices also have a role to play in collecting the information that’s necessary for us to test and then estimate the potential improper payments in the programs, which is really just the first step in this process, because once you estimate what program risks you have for improper payments, then HUD’s required to develop action plans to mitigate and address those. So here, without being able to complete the exercise of gathering the information and testing it, HUD can’t then take action to address it.

Tom Temin Right. So, in some sense they have to get a lot of information, a lot of data from all of the tiers along the line there somehow correlate that if that’s even possible. And then HUD’s responsibility ultimately though, to know whether the payments were all proper. So, there’s sort of a combination of trust and data and verifying here. It sounds like, frankly, a hairball from the from HUD standpoint to get on top of this.

Stephen Begg Because there are multiple program offices involved. You know, we felt like it was appropriate to raise it to HUD leadership to intervene, to bring them together. But in addition to the moving parts, the reason we feel like HUD has been unable to complete that first step in estimating is due in large part because their approach is flawed. They haven’t developed a sound methodology for collecting all of that information at the various tiers that you mentioned, in a way that they can complete the testing under the timelines required by the law.

Tom Temin Right. Could it be true that the process that they have developed over the decades of rendering housing assistance might be so convoluted that nobody could trace the money, and that they should maybe rethink the whole program from the ground up in terms of where the money goes when it leaves HUD or, you know, leaves the Treasury.

Stephen Begg You know, our position has been that HUD has the ability to act in a way across its offices to gather and estimate how the programs can be better protected so that the rental assistance funding that comes from taxpayers can be maximized to support the Americans that need it. Our alert raises that recommendation to the HUD Deputy Secretary to bring the offices together to really reset what the plan is for getting to that point.

Tom Temin But you do feel it’s possible to get a handle on the system as it’s designed now, if they put the effort toward it.

Stephen Begg We do. Absolutely.

Tom Temin And what kind of reaction did you get from HUD leadership when you issued this alert?

Stephen Begg The Deputy Secretary’s response agreed with our recommendation, which we were pleased with and agreed with the need that a detailed plan is necessary to expedite this exercise. The response indicated that the Deputy Secretary will provide that plan within 30 days, and she’s working across HUD program office leadership to get the job done. We are encouraged by that, and we look forward to working with HUD and supporting that effort.

Tom Temin Right. So, in other words, this program did get off the high-risk list somewhere along the line. So, we know it’s possible it did.

Stephen Begg Our concern, though, is that for the past seven years, and if by HUD’s estimation, three more years of potentially ten years, there will be a gap in overseeing it in terms of improper payments and then taking actions to mitigate them. So, in our estimation, there’s a pretty big gap in what we know about the potential for high risk.

Tom Temin Yeah. And what happened in 17, 18, 19 we probably will never know.

Stephen Begg That’s right. That’s right.

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