1 Frank J. Murphy Assistant Chief Financial Officer for Financial Management June 15, 2009 HUD’s Results on Eliminating Improper Payments

2 Requirements for Effective Measurement and Remediation of Improper Payments  Reporting Requirements  Risk Assessment  Measurement Results  Corrective Action Plans  Reduction Targets

3 Reporting Requirements What are agencies required to do? Step 1 - Review all programs and activities and identify those which are susceptible to significant erroneous payments. Step 2 - Obtain a statistically valid estimate of the annual amount of improper payments in programs and activities. Step 3 - Implement a plan to reduce erroneous payments. Step 4 - Report estimates of the annual amount of improper payments in programs and activities and progress in reducing them.

4 Why a Risk Assessment? Required by Congress and OMB. Means of prioritizing efforts and “targeting” scarce resources.

5 Risk Assessment Factors Dollar size Extent of centralization/ decentralization Age and complexity of activity Nature of recipients Quality of payment controls Quality of monitoring controls Human Capital Historical information

6 HUD’s First Risk Assessment ($52.9B Annual Payment Universe)

7 Measurement Results Statistical sampling results on 10 “at-risk” programs indicated that: 5 areas were below the $10M annual reporting/corrective action threshold, and 5 areas required reporting/corrective action: –3 Rental Housing Assistance Program Areas –1 Grant Program (Public Housing Capital Fund Program) –1 FHA Property Management Payment System (Single Family Asset Management System -- SAMS).

8 Corrective Action Plans Public Housing Capital Fund Program problem limited to largest funding recipient and required: –Contract retention/funds drawdown policy change, and –New accounting system implementation. FHA SAMS plan incorporated improved payment documentation and review requirements. Rental Housing Assistance Program problems required a comprehensive, multi-year strategy.

9 HUD’s 2009 Risk Assessment ($65.2B Annual Payment Universe)

10 Characteristics of HUD’s Rental Housing Assistance Programs Three major types of rental housing assistance programs: Public Housing, Tenant-based Housing Vouchers and Project- based Assistance. These programs constituted over $29 billion, or 45 percent, of HUD’s total payments in FY Over 4.7 million low-income households served each year. Programs are administered by over 26,000 public housing agencies and multifamily housing owners or management agents.

11 Types of Improper Payments in HUD’s Rental Housing Assistance Programs Errors in program administrator subsidy determinations; Errors due to tenant under-reporting of household income; and Errors in billing and payment processing.

12 Corrective Action Plans That Address Root Causes of Improper Payments Secretarial priority for all HUD stakeholders. Communication with intermediaries and industry groups on the problem and actions needed. Improved program guidance and training. Increased on-site monitoring of intermediary performance, with enhanced incentives/sanctions. Enhanced computer matching and data sharing for upfront verification of tenant income to avoid improper payments. Program structure changes in the Public Housing Operating Fund and the Housing Choice Voucher Program.

13 Improved Computer Matching to Verify Household Income Upfront vs. Backend Verification (Prevention vs. Detection). Most Current and Complete Income Data Source (HHS National Directory of New Hires Database vs. Federal Tax Data or State Wage Data). Internet Web-based “Enterprise Income Verification” (EIV) Systems Model (Limits Access to Business Need in a Secured Environment). Reduces administrative burden and affords beneficiaries greater privacy and dignity.

14 Results of Computer Matching with HHS-NDNH Database Analyzed data of approximately 3.1 million households (approximately 2.1M Public Housing Agency and 970K Multi- Family Households). Projected income that will not go under-reported in the next twelve months: $4.6 billion (approximately $4 billion (Public Housing) and $0.6 billion (MFH). Program administrators now have the ability to avoid/reduce improper payments on the front end. Phenomenal return on investment (EIV system) – a few million spent to reduce a few billon dollars in errors. HUD anticipates greater reductions in future years through full implementation of the NDNH database for all HUD rental assistance programs.

Program Structure Changes Reduce Opportunities for Improper Payments Due to new program structure changes in the Public Housing Operating Fund, Administrator and Income Reporting errors will be borne by the PHA leaving HUD’s subsidy payment unchanged. The establishment of a budget based funding methodology used in the Housing Choice Voucher Program reduces or eliminates the opportunity for improper payments in that program. 15

16 Reduction/Recovery Targets Rental Assistance Improper Payment Reduction Outlook Results FY 2006–FY 2009 (Dollars shown in billions) ActivityFY 06 Payments FY 06 IP $ FY 06 IP% Goal/A ctual FY 07 Payments FY 07 IP $ FY 07 IP% Goal/ Actual FY 08 IP % Goal FY 09 IP % Goal Rental Assistance $27.505$ /5.5$28.151$ /

17 HUD Continues to Reduce Improper Payments Full Implementation of the EIV System for Multifamily Housing Rental Assistance Programs; Sustaining an adequate on-site monitoring presence in all rental assistance programs; Demonstrating a continued downward trend in improper rental housing assistance programs; and Continuing to comply with the annual requirements of the Improper Payments Information Act.

18 HUD’s Contact on Improper Payment Issues Frank J. Murphy Assistant CFO for Financial Management Phone: