HUD Subsidized 10,119 Units for Tenants Who Were Undercharged Flat Rents

HUD’s Office of Inspector General (OIG) audited public housing agency compliance with HUD’s flat-rent requirements. HUD requires that public housing authorities (PHAs) offer families the choice of paying income-based rent (generally up to 30 percent of adjusted income) or a flat-rate rent, which is based on the market rent charged for comparable units in the private unassisted rental market. Flat-rate rents won’t be affected by increases in income from employment or disability benefits, but may be higher than income-based rent. OIG initiated this audit based on multiple external audits that showed that PHAs were unaware of or didn’t properly implement the flat-rent requirements. OIG’s objective was to determine whether PHAs complied with HUD’s flat-rent requirements.

Auditors found that PHAs didn’t properly implement HUD’s flat-rent requirements for more than half of the flat-rent tenants reviewed. They undercharged flat rents for 18 of the 60 tenants, which projects to a total of 10,119 undercharged flat-rent tenants. Additional PHAs used the incorrect methodology to calculate flat rents for 10 tenants but complied with the minimum requirements, and four others incorrectly calculated flat rents but were correct for the sampled tenant during December 2016. As a result, PHAs undercharged flat rent tenants by an estimated $527,052 nationwide during December 2016 and could undercharge flat-rent tenants by approximately $6.3 million during the next year if HUD doesn’t correct this problem. PHAs could also collect increased operating subsidies from HUD.

OIG recommended that HUD finalize and implement monitoring procedures to ensure that approximately $6.3 million is put to better use over the next year. OIG also recommended that HUD clarify guidance to enhance PHA understanding of the requirements and follow up with the PHAs in the auditors’ sample to ensure that their rents have been properly adjusted.

• HUD Audit 2017-KC-0007, July 2017