HUD’s Office of the Inspector General (OIG) found that the Office of Public and Indian Housing did not sufficiently identify risks that could disrupt the effective implementation of the Rental Assistance Demonstration (RAD). HUD’s internal management controls require that a Front-End Risk Assessment (FERA) be completed for any new or substantially revised program or administrative function to determine its susceptibility to waste, fraud, abuse, or mismanagement. In a report issued on September 3, the OIG found that HUD’s FERA of RAD was incomplete and untimely. The RAD FERA was issued in September 2013, almost two years after Congress authorized RAD in November 2011.
RAD was authorized by Congress to allow public housing agencies to convert public housing subsidies to either project-based rental assistance contracts or a project-based voucher subsidies. Doing so would open up more private financing opportunities for public housing agencies seeking to preserve their public housing units. RAD also allows for the conversion of other HUD subsidy streams to Section 8 programs, but most all of the units expected to be converted under RAD are public housing units. Congress limited the number of public housing units that may convert to 185,000. As of June 2015, HUD has closed on 168 RAD applications, representing 17,841 units.
The OIG reports that HUD did not identify all risks posed by RAD. Specifically, OIG faults HUD for not identifying Congress’s lack of additional administrative funding for RAD implementation, which could limit salaries and other resources for other HUD programs. The OIG also states that HUD should have identified the RAD statute’s lack of specificity regarding which fiscal year was to be used to determine funding for units converted under RAD.
The OIG also reports that the RAD FERA did not document how HUD planned to ensure tenant rights are protected. “One of the main concerns of Congress related to the Demonstration is the impact on housing opportunities for the low income public housing residents affected by the Demonstration. Another risk is that tenants at the low income project would not or could not reside in the converted projects due to possible arbitrary policy decisions of participating PHAs,” the report says.
Another potential risk that the OIG says HUD failed to include in its RAD FERA is that of overriding existing policies related to deconcentrating poverty in order to focus RAD work on preserving affordable housing stock. HUD responded in the report that the agency did not include some such risks because they were not found to be “medium or high” risks, but the OIG repeatedly states that the FERA must include all risks, not just those HUD determines as medium or high risks.
The OIG also faults HUD for not prescribing a means to reduce the risk for substandard public housing agencies that might not be able to provide relevant and reliable data to evaluate RAD. As an example of the importance of this issue, the OIG refers to a 2013 OIG audit report on the Moving to Work program that concluded, “in more than 15 years since the [MTW] program was implemented, HUD had not been able to show whether the program had met its objectives. This conclusion was based in part on the lack of verified data from participating agencies.”
In its response, HUD says it will modify its FERA to address additional risks. HUD also states it will document in an updated RAD FERA the policies and procedures adopted to ensure robust tenant protections and improved property conditions under RAD. HUD states this will include technical assistance materials, training, in-depth reviews of transactions with certain risk elements, and reporting requirements, as well as clearer policies on establishing contract rents.
The OIG Audit Report Number 2015-AT-0003, HUD Did Not Complete Adequate Front-End Risk Assessment for the Rental Assistance Demonstration, published on September 3, is available at https://www.hudoig.gov/sites/default/files/documents/2015-AT-0003.pdf.