Owner Allowed Onsite Employees to Commit Fraud

HUD’s Office of Inspector General (OIG) audited a multifamily Section 8 project-based rental assistance (PBRA) program in Port Arthur, Texas. The OIG’s objective was to determine whether the owner administered its Section 8 PBRA program in accordance with HUD regulations and guidance. Specifically, OIG wanted to determine whether tenants were eligible for the program, housing assistance subsidies were accurate, and units received required inspections.

Auditors found that the owner did not administer its Section 8 PBRA program in accordance with HUD regulations and guidance. It assisted at least 82 tenants who were either ineligible for assistance because they did not exist or the tenant eligibility and the unit physical condition standards could not be supported. These conditions occurred because the owner and former management agent lacked oversight of their staff. They also failed to establish effective control systems, which allowed their onsite employees to commit fraud. 

The employees falsified tenant eligibility, didn’t properly verify tenant income, and didn’t inspect the units as required by HUD. As a result, HUD paid the owner $534,741 in subsidies for ineligible “ghost” tenants and incurred more than $1 million in subsidies for which the owner could not support the tenants’ subsidy amounts or that the subsidized units were in decent, safe, and sanitary condition.

OIG recommended that the Southwest Region Director of Multifamily Housing require the owner to repay HUD $534,741 for housing subsidies received for ineligible nonexistent “ghost” tenants and support or repay HUD more than $1 million for tenants whose eligibility the owner could not support. In addition, HUD should require its contract administrator to ensure that the owner’s recently implemented quality control program is working as designed and in accordance with HUD requirements. OIG also recommended that the Departmental Enforcement Center take appropriate administrative actions against the appropriate owner(s).

• HUD Audit 2018-FW-1002