HUD Multifamily Housing: Improved Follow-up Needed to Ensure That
Physical Problems Are Corrected (21-JUN-01, GAO-01-668).
The Department of Housing and Urban Development (HUD) assists
nearly 30,000 privately owned and operated multifamily properties
to provide affordable housing for low and moderate income
populations. HUD is responsible for ensuring that the owners of
HUD-assisted properties provide housing that is decent, safe,
sanitary, and in good repair. However, some of the properties are
in poor quality. HUD implemented its Real Estate Assessment
Center (REAC) in 1998 to inspect multifamily properties, and rate
their condition. This report addresses whether: (1) HUD field
offices are complying with the procedures HUD established to
ensure that the physical deficiencies at these properties are
corrected, (2) all physical deficiencies have been corrected at
properties that HUD classified as repaired, and (3) HUD staff
and property owners are meeting the Department's timeliness goals
and requirements for addressing physical deficiencies. GAO found
that HUD's field offices frequently did not follow the
Department's procedures for ensuring that property owners are
correcting all physical deficiencies. On the basis of GAO's site
visits to properties that HUD classified as repaired, about half
of the property covered by GAO's analysis were not corrected.
Furthermore, HUD's staff and property owners are not meeting
timeliness goals and requirements for addressing physical
deficiencies.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-668
ACCNO: A01223
TITLE: HUD Multifamily Housing: Improved Follow-up Needed to
Ensure That Physical Problems Are Corrected
DATE: 06/21/2001
SUBJECT: Housing programs
Building inspection
Housing repairs
Low income housing
Noncompliance
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GAO-01-668
Report to Congressional Requesters
United States General Accounting Office
GAO
June 2001 HUD MULTIFAMILY HOUSING
Improved Follow- up Needed to Ensure That Physical Problems Are Corrected
GAO- 01- 668
Page i GAO- 01- 668 HUD Multifamily Housing Letter 1
Results in Brief 2 Background 4 HUD?s Field Offices Frequently Did Not
Follow Procedures for
Ensuring That Property Owners Completed Repairs 8 Most Properties Classified
as Repaired Had Uncorrected Physical
Deficiencies 14 HUD Has Had Difficulty Ensuring That Timeliness Goals and
Requirements for Addressing Physical Deficiencies Are Achieved 25
Conclusions 28 Recommendations for Executive Action 29 Agency Comments and
Our Response 30
Appendix I Office of Special Investigations? Findings 33
Appendix II Comments From the Department of Housing and Urban Development 36
Appendix III Objectives, Scope, and Methodology 41
Appendix IV GAO?s Sampling Methodology 44
Appendix V GAO Contacts and Staff Acknowledgments 49
Tables
Table 1: Number of Properties That GAO Sampled and Reviewed, by Scoring
Group 45 Table 2 : Confidence Intervals for Estimates Relating to GAO?s
Document Review 47 Table 3 : Confidence Intervals for Estimates Relating to
GAO?s
Property Inspections 48 Contents
Page ii GAO- 01- 668 HUD Multifamily Housing Figures
Figure 1: Percentage of Multifamily Properties With Inspection Results
Issued in Fiscal Year 2000, by Inspection Scoring Range 6 Figure 2:
Estimated Percentage of Properties for Which HUD Did
Not Obtain a Complete Certification That All Exigent Health and Safety
Violations Had Been Corrected 9 Figure 3: Estimated Percentage of Properties
for Which HUD Did
Not Obtain a Complete Certification of Repairs 10 Figure 4: Estimated
Percentage of Properties Without a Detailed
Repair Plan 11 Figure 5: Estimated Percentage of Properties Without Progress
Reports 12 Figure 6: Estimated Percentage of Properties for Which 25 Percent
or More of the Deficiencies Were Not Corrected 15 Figure 7: Uncorrected
Physical Deficiencies at Properties That
HUD Classified as Repaired 17 Figure 8: Estimated Percentage of Properties
at Which One or
More Defects Were Incorrectly Reported as Repaired 23
Abbreviations
GAO General Accounting Office HUD Department of Housing and Urban
Development REAC Real Estate Assessment Center
Page 1 GAO- 01- 668 HUD Multifamily Housing
June 21, 2001 The Honorable Marge Roukema Chairwoman The Honorable Barney
Frank Ranking Minority Member Subcommittee on Housing and
Community Opportunity Committee on Financial Services House of
Representatives
The Department of Housing and Urban Development (HUD) assists nearly 30,000
privately owned and operated multifamily properties through subsidies,
financing, or mortgage insurance to help provide affordable housing for the
nation?s low- and moderate- income population. HUD is responsible for
ensuring that the owners of HUD- assisted properties provide housing that is
decent, safe, sanitary, and in good repair. However, the poor quality of
some of this housing has contributed to long- standing concerns about the
Department?s ability to fulfill this mandate. To address these concerns, HUD
in late 1998 implemented a new system for inspecting multifamily properties
and overseeing the owners? correction of physical deficiencies identified by
these inspections. Under this system, HUD?s Real Estate Assessment Center
(REAC) inspects multifamily properties and rates their condition on a scale
from 0 to 100. HUD considers properties scoring less than 60 to be in
substandard physical condition. HUD?s multifamily housing field offices and
Departmental Enforcement Center are responsible for ensuring that the owners
of these properties complete necessary repairs.
In July 2000, we reported on various aspects of REAC?s physical inspection
system, including how the system differed from HUD?s previous physical
inspection systems and the adequacy of REAC?s quality assurance procedures.
1 As you requested, this report focuses on HUD?s actions to ensure that
physical deficiencies at multifamily properties in substandard condition are
corrected. Specifically, this report addresses the following questions: (1)
Are HUD?s field offices complying with the procedures HUD established to
ensure that the physical deficiencies at these properties are
1 HUD Housing Portfolios: HUD Has Strengthened Physical Inspections but
Needs to Resolve Concerns About Their Reliability (GAO/ RCED- 00- 168, July
25, 2000).
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 01- 668 HUD Multifamily Housing
corrected? (2) Have all physical deficiencies been corrected at properties
that HUD classified as repaired? (3) Are HUD staff and property owners
meeting the Department?s timeliness goals and requirements for addressing
physical deficiencies?
To address these questions, we reviewed the activities of HUD?s Office of
Multifamily Housing, multifamily housing field offices, and Departmental
Enforcement Center, as well as the center?s five satellite offices. Our work
focused on the 528 metropolitan- area properties in substandard condition
for which HUD issued inspection reports and that its field offices
classified as repaired in fiscal year 2000. 2 Our analysis addresses 499 of
the 528 properties that we estimate required follow- up action by HUD. 3 In
conducting our work, we analyzed documentation pertaining to HUD?s follow-
up actions on REAC?s inspections for a stratified random sample of 95 of
these properties. In addition, we visited 35 of the 95 properties in our
sample to determine whether the owners had corrected the deficiencies
identified by REAC?s inspection. During our site visits, we determined
whether defects associated with the properties? sites, exteriors, systems,
and common areas that REAC categorized as ?major? or ?severe? had been
corrected. On the basis of our analyses of the sampled properties, we
estimated the percentage of the 499 properties that did not meet certain HUD
follow- up requirements. Appendixes III and IV provide detailed information
on our objectives, scope, and methodology.
HUD?s field offices frequently did not follow the Department?s procedures
for ensuring that property owners are correcting all physical deficiencies.
These procedures require field staff to obtain and review key documents
related to an owner?s corrections before they classify a property as
repaired. From our review of HUD?s documentation, we estimate that for two-
thirds of the 499 properties covered by our analysis, HUD?s field offices
did not receive the required certification from the owner that all physical
deficiencies had been corrected. HUD also requires property
2 We excluded from our sample properties that were not located in the
contiguous United States. 3 We determined from a sample of the 528
properties that some of the properties did not require HUD?s follow- up
because their inspection scores had been raised, their HUDinsured mortgages
had been foreclosed on or paid off, or a local housing finance agency was
responsible for the follow- up actions on the inspection. Accordingly, we
used statistical methods to estimate how many of the 528 properties required
HUD?s follow- up. See appendix IV for more details. Results in Brief
Page 3 GAO- 01- 668 HUD Multifamily Housing
owners to submit a detailed repair plan that, among other things, includes a
description of and time frame for correcting each deficiency. However, we
estimate that HUD?s field offices did not obtain a detailed repair plan for
about 60 percent of the properties covered by our analysis. Finally, we
estimate that for nearly two- thirds of the properties covered by our
analysis, the field offices did not receive progress reports from the
owners, as required by HUD?s guidance. HUD?s field offices did not always
comply with inspection follow- up procedures because of insufficient
guidance to both field staff and property owners and because HUD?s
headquarters allowed the field staff to use discretion in implementing
agency guidance without ensuring the proper exercise of this discretion.
On the basis of our site visits to properties that HUD classified as
repaired, we estimate that for about half of the properties covered by our
analysis, at least 25 percent of the deficiencies that REAC classified as
?major? or
?severe? were not corrected. Our site visits identified a variety of
uncorrected problems, including exigent health and safety violations such as
exposed electrical wiring. We found these problems because in some instances
HUD?s field staff classified properties as repaired without obtaining a
detailed repair plan and a written certification from the owner that all
physical deficiencies had been corrected. We also found that some property
owners and managers reported completing repairs that had not been made. On
the basis of our site visits, we estimate that about 60 percent of the
properties covered by our analysis had one or more deficiencies incorrectly
reported to HUD as repaired. Our Office of Special Investigations
investigated 10 properties where our work indicated possible fraud or false
statements. In three cases, our investigators developed credible evidence
that property managers had made material false statements to HUD when
reporting that cited deficiencies had been corrected. We referred these
matters to the appropriate law enforcement agencies for further action.
HUD has had difficulty ensuring that agency staff and property owners are
meeting timeliness goals and requirements for addressing physical
deficiencies. For example, while property owners are required to correct
exigent health and safety violations within 72 hours of REAC?s inspections
and certify these corrections in writing, HUD lacked assurance that owners
were adhering to this requirement. On the basis of our document review, we
estimate that most of the certifications HUD received were not submitted
within that time frame. Similarly, HUD?s Departmental Enforcement Center-
which follows up on properties with the lowest physical inspection scores-
seldom met its goal of completing evaluation reports on properties within 90
days of receiving a referral. Although
Page 4 GAO- 01- 668 HUD Multifamily Housing
between fiscal year 1999 and fiscal year 2000 the center substantially
improved its average time for completing these reports, it did not meet its
timeliness goal for 93 percent of the referrals it received in fiscal year
2000. According to center officials, the major reasons for these processing
delays were insufficient and inexperienced staff, the time required to
recruit and train staff, and a lengthy process for reviewing proposed
enforcement actions. The center has taken actions to address these problems,
which should improve its timeliness in processing cases.
This report makes recommendations to the Secretary of HUD designed to
improve the effectiveness of HUD?s processes for ensuring that (1) owners of
properties in substandard condition correct all physical deficiencies and
(2) HUD has accurate information on the status of repair work at these
properties. In an April 2001 meeting, officials from HUD?s Office of
Multifamily Housing and Enforcement Center agreed that improvements were
needed in HUD?s procedures for ensuring that physical deficiencies are
corrected. They told us that they were revising their inspection followup
procedures and believed that the changes they were making would address
weaknesses we had identified.
Approximately 2 million American families live in privately owned
multifamily housing that receives assistance from HUD. This housing includes
properties that get some form of rental assistance, including Section 8
subsidies, from HUD; properties whose mortgages are insured or held by HUD;
and properties that are financed by HUD. 4 HUD?s physical condition
standards for multifamily properties are based on language in the United
States Housing Act of 1937 (42 U. S. C. 1437 et seq.) that requires
federally assisted housing for low- income individuals to be decent, safe,
and sanitary. This act applies to Section 8 assisted housing and public
housing. For HUD- insured multifamily housing, the mortgagors are required
by contract to maintain the mortgaged premises in good repair and condition.
HUD considers this requirement very similar if not identical to the standard
for decent, safe, and sanitary housing.
In 1997, as part of its 2020 Management Reform Plan, HUD created REAC to
obtain consistent information on, among other things, the physical
4 HUD?s Section 8 program provides rental subsidies for low- income
families. These subsidies are linked either to multifamily apartment units
(project- based) or to individuals (tenant- based). HUD?s uniform physical
condition standards apply to Section 8 projectbased assisted housing.
Background
Page 5 GAO- 01- 668 HUD Multifamily Housing
condition of its multifamily housing. In late 1998, REAC began to inspect
these properties using a set of uniform standards that could be applied to
all HUD housing, regardless of the source of subsidy or assistance. These
standards group observable deficiencies into five major inspectable areas:
site, building exterior, building systems, dwelling units, and common areas.
5
REAC?s inspectors classify the deficiencies they observe at each property as
?minor,? ?major,? or ?severe? on the basis of definitions HUD has
established for specific inspectable items (e. g., windows, foundations, and
water systems). For example, HUD considers a cracked window pane to be a
?minor? deficiency, but classifies a missing window pane as a ?severe?
deficiency. REAC?s inspectors are also required to notify a property owner
or manager of any exigent (? life- threatening?) health and safety
violations, such as exposed electrical wiring, at the end of the inspection.
A computer program assigns different weights and values to the deficiencies
to derive an overall score for the property on a scale from 0 to 100. The
final score and observed deficiencies are summarized in a report that REAC
sends to the property owner and to the appropriate HUD field office.
Following a REAC inspection, property owners are required to conduct their
own inspections, referred to as physical surveys, of the entire property.
A property?s inspection score dictates the extent of HUD?s follow- up
actions to ensure that the physical deficiencies are corrected. A score of
60 or above generally indicates that a property is in satisfactory physical
condition. HUD considers all properties that score less than 60 to be in
substandard condition and those scoring 30 and below to be in severe
physical distress. Figure 1 shows the percentage of the 15,384 multifamily
properties whose inspection reports were issued during fiscal year 2000 that
fell into each category.
5 A particular deficiency can be included in more than one of these five
major inspectable areas.
Page 6 GAO- 01- 668 HUD Multifamily Housing
Figure 1: Percentage of Multifamily Properties With Inspection Results
Issued in Fiscal Year 2000, by Inspection Scoring Range
Source: GAO?s analysis of data from HUD?s Real Estate Management System.
Properties scoring 60 or above are generally not subject to follow- up from
HUD, but the Department expects the owners to correct physical deficiencies
as part of their ongoing maintenance programs. In these situations, HUD
generally does not require either a repair plan or a written certification
from the owner that all deficiencies have been corrected.
Properties scoring 31 to 59 are referred to HUD?s multifamily housing field
offices- including 18 ?hubs? and their associated 33 program centers- which
report to HUD?s Office of Multifamily Housing. In September 1999,
Multifamily Housing issued guidance to these field offices that sets forth
HUD?s follow- up procedures for properties in substandard condition.
According to the procedures, the field offices are responsible for working
with owners of substandard properties to ensure that all physical
deficiencies identified by the REAC inspection and the owner?s physical
survey are corrected. These responsibilities include obtaining and reviewing
(1) written certifications that indicate the correction of all
Page 7 GAO- 01- 668 HUD Multifamily Housing
exigent health and safety violations 6 and the correction of all other
physical deficiencies at the property, (2) detailed repair plans that
address each deficiency, (3) the results of owners? physical surveys, and
(4) progress reports on the completion of repairs. HUD established
timeliness goals and requirements for some of these follow- up actions. For
example, property owners are required to correct exigent health and safety
violations no later than 72 hours after the inspection and to submit
proposed repair plans to HUD within 30 days of receiving the inspection
results. Additionally, field office staff are to log all follow- up actions
in a departmental database- the Real Estate Management System- that HUD uses
to manage its multifamily housing portfolio.
Properties scoring 30 and below are referred to the Departmental Enforcement
Center and its five satellite offices in Atlanta, Georgia; Chicago,
Illinois; Forth Worth, Texas; Los Angeles, California; and New York, New
York. For each referral, the center conducts an evaluation of the property?s
physical, management, and financial condition to determine whether to accept
the case or return it to a HUD multifamily housing field office for routine
follow- up on the REAC inspection. If the Enforcement Center accepts the
case, it writes an evaluation report that contains an assessment of the
property and an action plan outlining (1) the steps the owner must take-
such as implementing a repair plan- to bring the property into compliance
with HUD?s physical standards and (2) the enforcement actions the center may
take if the property owner fails to improve the condition of the property.
These enforcement actions may include foreclosing on the property?s
mortgage, terminating Section 8 rental payments, or suspending the owner
from further participation in federal government programs. If the center
does not take an enforcement action, the case is sent to the appropriate
multifamily field office, and the property is subject to the same follow- up
requirements as properties scoring 31 to 59.
The Enforcement Center also evaluates portfolios of properties with common
owners to uncover patterns of noncompliance with HUD?s financial and
physical standards. By addressing noncompliance by portfolio rather than by
individual property, the center believes it can maximize the impact of its
enforcement efforts and reduce the risk of default on HUD- insured mortgages
held by common owners. In one case
6 Any property can be cited for exigent health and safety violations
regardless of its inspection score.
Page 8 GAO- 01- 668 HUD Multifamily Housing
involving 30 HUD- assisted properties in substandard physical condition, the
center found that the owners were not using available operating and reserve
funds to maintain and repair the properties. In response to the center?s
findings, the owners agreed, among other things, to commit approximately $20
million for current and future repairs at these properties.
HUD?s field offices have not always complied with the Department?s
procedures for ensuring that property owners are correcting all physical
deficiencies. Contrary to HUD?s guidance, HUD?s field offices frequently
classified properties as repaired without receiving complete certifications
of repairs from the owners. In addition, they often did not obtain detailed
repair plans from property owners or the results of owners? physical
surveys, as required. Lastly, the field offices? monitoring of repair work
was limited because field staff often did not obtain required progress
reports from property owners. HUD field staff did not always follow these
procedures because some of the guidance was inadequate and the Department
did not adequately oversee the field staff?s implementation of the guidance.
HUD requires two written certifications from property owners as evidence
that a property has been fully repaired: one stating that all of the exigent
health and safety violations have been corrected and the other stating that
all other deficiencies identified by REAC?s inspection and the owner?s
physical survey have been repaired. However, our analysis of HUD?s
documentation for 95 properties that it classified as repaired in fiscal
year 2000 showed that HUD field staff often did not obtain these
certifications from owners or accepted incomplete certifications that did
not indicate all of the defects had been corrected. When HUD does not obtain
complete certifications, it lacks an adequate basis for classifying
properties as repaired and does not have assurance that all deficiencies
have been corrected.
According to HUD?s guidance, all exigent health and safety violations
identified during a REAC inspection must be corrected by the property owner
no later than 72 hours after the inspection. Once the owner fixes the
problems, he or she is required to submit a letter to the appropriate HUD
field office certifying that all of the violations have been corrected.
However, we found that the field offices often did not obtain these
certification letters or received certifications that were incomplete (i.
e., they indicated that some of the deficiencies had not been repaired).
HUD?s Field Offices
Frequently Did Not Follow Procedures for Ensuring That Property Owners
Completed Repairs
Field Offices Often Did Not Obtain Owners? Certifications of Repairs
Page 9 GAO- 01- 668 HUD Multifamily Housing
Specifically, we estimate on the basis of our document review that HUD
received either no certification or an incomplete certification for 29
percent of the 460 properties with exigent health and safety violations that
were covered by our analysis. (See fig. 2.)
Figure 2: Estimated Percentage of Properties for Which HUD Did Not Obtain a
Complete Certification That All Exigent Health and Safety Violations Had
Been Corrected
Source: GAO?s analysis of documentation from HUD?s field offices.
HUD requires property owners to submit a second certification letter once
they correct the balance of the deficiencies cited in REAC?s inspection
report and any other problems identified by the owner?s physical survey.
Because HUD does not have the resources to perform a follow- up visit to
every property and confirm the status of repair work, the certification
letter is HUD?s primary evidence that the owner corrected all of the
physical deficiencies. Furthermore, once field staff receive an owner?s
certification, they should classify the property as repaired in HUD?s Real
Estate Management System, thereby concluding their follow- up actions on
that inspection.
Despite the importance of certification letters, our document review showed
that HUD?s field offices often did not obtain them. Specifically, we
estimate that HUD did not receive a certification of repairs for 31 percent
of the 499 properties covered by our analysis. Moreover, when the field
offices received certification letters, the certifications were frequently
incomplete (i. e., they indicated that some of the defects had not been
Page 10 GAO- 01- 668 HUD Multifamily Housing
corrected). We estimate that for 68 percent of the 499 properties, HUD?s
field offices either obtained no certification or an incomplete
certification from the owner. (See fig. 3.)
Figure 3: Estimated Percentage of Properties for Which HUD Did Not Obtain a
Complete Certification of Repairs
Source: GAO?s analysis of documentation from HUD?s field offices.
HUD requires the owner of a property in substandard condition to submit
repair plans for correcting the physical deficiencies identified by REAC?s
inspection and the owner?s physical survey of the property. In most
circumstances, HUD requires a ?detailed? plan, which includes a description
of and time frame for correcting each deficiency, among other things.
However, on the basis of our document review for 95 properties, we estimate
that HUD did not obtain a detailed repair plan for 62 percent of the 499
properties covered by our analysis. (See fig. 4.) When property owners do
not submit detailed plans, HUD has little assurance that they are addressing
all of the property?s deficiencies or are scheduling the necessary repair
work. HUD field staff may waive the requirement for a detailed plan if the
owner indicates that all of the repairs can be completed within 90 days of
the inspection and the field staff decide, on the basis of the owner?s past
history and the extent of the property?s deficiencies, that the owner can be
relied upon to complete the work in an acceptable manner. HUD?s guidance
requires field staff to document this decision in a memorandum to the file.
Because none of the 95 properties in our sample Field Offices Frequently
Did Not Get Detailed Repair Plans
Page 11 GAO- 01- 668 HUD Multifamily Housing
had such a memorandum, a detailed repair plan should have been prepared for
each property.
Figure 4: Estimated Percentage of Properties Without a Detailed Repair Plan
Source: GAO?s analysis of documents from HUD?s field offices.
In developing repair plans, HUD requires property owners to perform a
complete physical survey of the property. HUD?s guidance states that the
results of this survey should be outlined in the owner?s repair plan.
According to HUD officials, the purpose of the survey is to supplement
REAC?s inspection, which usually does not cover all of the property?s
dwelling units. However, we found that HUD?s field offices generally did not
obtain information on the results of these surveys in the repair plans or
other documentation submitted by property owners. On the basis of our
document review, we estimate that for 72 percent of the 499 properties
covered by our analysis, HUD did not obtain information on the results of
the owner?s physical survey. Consequently, HUD had little assurance that
property owners were either conducting physical surveys or correcting the
physical defects identified by their surveys.
Page 12 GAO- 01- 668 HUD Multifamily Housing
According to HUD?s guidance, property owners must submit monthly progress
reports to the appropriate HUD field office. These reports must specify the
repairs made during each reporting period until all the repairs have been
completed. We found, however, that HUD?s field staff often did not obtain
these reports, thereby limiting their ability to monitor the progress of
repairs. Specifically, on the basis of our document review, we estimate that
HUD?s field offices did not receive any progress reports for 65 percent of
the 499 properties covered by our analysis. (See fig. 5.) Although our
review of HUD?s documents indicated that HUD field staff sometimes used
other monitoring tools, such as site visits and examinations of repair
estimates, to track an owner?s progress, their use of these tools was
limited. Furthermore, these tools are intended as supplements to rather than
as replacements for progress reports from property owners.
Figure 5: Estimated Percentage of Properties Without Progress Reports
Source: GAO?s analysis of documentation from HUD?s field offices.
Field Offices Often Did Not Obtain Progress Reports
Page 13 GAO- 01- 668 HUD Multifamily Housing
HUD field staff did not always comply with procedures for following up on
REAC inspections and classifying properties as repaired because HUD (1) did
not provide sufficient guidance to field staff and property owners for key
aspects of the follow- up process and (2) allowed its field staff to use
discretion in implementing inspection follow- up guidance but did not
oversee their actions to ensure that this discretion was exercised properly.
In part, the field offices? noncompliance with procedures is attributable to
a lack of clear guidance to both field staff and property owners. While HUD
requires and has trained field staff to classify properties as repaired in
the Real Estate Management System once an owner submits a letter certifying
the correction of all deficiencies, it has not issued guidance to its field
staff about how to perform this database procedure. The lack of guidance is
problematic because the procedure is potentially confusing to field staff.
For example, the database prompts field staff to enter a ?start?
date when the owner has completed repairs. Once a date is entered, the
database categorizes the property as repaired. However, some field staff
interpreted the ?start? date to mean when the repairs began. As a result, we
identified instances where project managers classified properties as
repaired before they intended to and before the owners had actually
completed all of the repairs. In addition, while HUD?s guidance to its field
offices indicates that all property owners must certify that all physical
deficiencies have been corrected, HUD?s standard follow- up letters to
property owners about their inspection results do not explicitly state this
requirement. Similarly, while HUD?s guidance to its field offices indicates
that property owners? detailed repair plans must, among other things,
include a description of and time frame for correcting each deficiency,
HUD?s standard follow- up letters to owners do not stipulate that the plans
must include these elements. Although HUD field staff are responsible for
complying with the agency?s inspection follow- up procedures, we believe
that the lack of clear instructions to property owners contributed to
owners? submitting certifications of repairs and repair plans that did not
meet HUD?s requirements.
Another factor contributing to the field offices? noncompliance is the lack
of headquarters? oversight of the field offices? implementation of
inspection follow- up procedures. The Office of Multifamily Housing allows
field staff to use some discretion, based on their knowledge of the
properties and owners, in implementing the follow- up procedures. Consistent
with this decision, some field staff told us they did not always adhere to
the procedures when following up on properties about which they felt
knowledgeable. While we can understand Multifamily Housing?s decision to
allow field offices some discretion in implementing the follow Insufficient
Guidance and
Limited Oversight Contributed to Noncompliance
Page 14 GAO- 01- 668 HUD Multifamily Housing
up procedures, such a decision heightens the need for headquarters?
oversight of the field staff?s actions. However, Multifamily Housing has not
instituted a process for reviewing the field offices? compliance with the
procedures. In addition, HUD in fiscal year 2000 developed a quality
management review program to assess the efficiency and effectiveness of the
field offices? activities. However, the review program does not assess the
field offices? implementation of the inspection follow- up process,
according to HUD officials who manage the program.
HUD classified properties as repaired, even though the properties had
uncorrected physical deficiencies. On the basis of our visits to some of
these properties, we estimate that over three- fourths of the properties
covered by our analysis still had physical deficiencies identified by REAC?s
inspections. At the properties, we found a variety of uncorrected problems,
including exigent health and safety violations. HUD improperly classified
properties as repaired because its field offices did not always comply with
inspection follow- up procedures and because property owners and managers
did not always submit accurate reports. HUD is taking some actions to
strengthen its inspection follow- up process.
According to HUD?s guidance, HUD field staff should classify a property as
repaired in the Real Estate Management System after the property owner
provides a written certification that all of the deficiencies identified by
REAC?s inspection and the owner?s physical survey have been corrected.
However, our visits to 35 properties that HUD?s field offices classified as
repaired showed that most of the properties had uncorrected physical
problems. As a result, we believe that HUD?s database overstates the number
of properties that were actually fully repaired.
Our inspections of the 35 properties focused on deficiencies with the
properties? sites, exteriors, common areas, and systems that REAC cited in
its inspection report and categorized as ?major? or ?severe.? At each
property, we determined whether the deficiencies that met these criteria had
been corrected. On the basis of our visits, we estimate that 83 percent of
the 499 properties covered by our analysis had one or more uncorrected
deficiencies that met our criteria for review. Although some repairs had
been made at all of the properties we visited, at many of the properties a
Most Properties
Classified as Repaired Had Uncorrected Physical Deficiencies
Properties Had Uncorrected Physical Deficiencies
Page 15 GAO- 01- 668 HUD Multifamily Housing
significant portion of the defects remained uncorrected. 7 Specifically, we
estimate on the basis of our visits that for 55 percent of the 499
properties, 25 percent or more of the deficiencies that met our review
criteria had not been corrected. (See fig. 6.)
Figure 6: Estimated Percentage of Properties for Which 25 Percent or More of
the Deficiencies Were Not Corrected
Source: GAO?s analysis of information from inspections of 35 properties.
7 Among the 35 properties we visited, the percentage of deficiencies that we
reviewed that had not been corrected ranged from 0 percent (5 properties) to
88 percent (1 property). The number of defects we reviewed at each property
ranged from 4 to 85. When we were unable to determine whether a defect had
been repaired (e. g., because of snow cover), we did not include it in our
analysis. Eighteen of the 35 properties we visited received a REAC
inspection subsequent to the one we used as a basis for our visit. Although
changes in REAC?s inspection protocol, among other factors, make comparisons
between the scores problematic, all 18 properties scored higher on the
second inspection.
Page 16 GAO- 01- 668 HUD Multifamily Housing
During our inspections, we observed a variety of uncorrected physical
problems. For example, at some sites the driveways and walkways had
deteriorated, and the fencing was damaged or missing. On the exteriors of
buildings, we found defects such as holes in the walls and a cracked
foundation. In addition, we noted problems in the common areas of buildings,
including a damaged ceiling and a missing heating and airconditioning unit.
Finally, we found uncorrected problems with water and electrical systems,
including rusted and corroded pipes and inoperable lights. The photographs
in figure 7 illustrate some of the uncorrected deficiencies we found at the
properties we visited. Uncorrected Defects
Encompassed a Range of Problems, Including Exigent Health and Safety
Violations
Page 17 GAO- 01- 668 HUD Multifamily Housing
Figure 7: Uncorrected Physical Deficiencies at Properties That HUD
Classified as Repaired
Page 18 GAO- 01- 668 HUD Multifamily Housing
Page 19 GAO- 01- 668 HUD Multifamily Housing
Page 20 GAO- 01- 668 HUD Multifamily Housing
Page 21 GAO- 01- 668 HUD Multifamily Housing
Sources: HUD and GAO.
Some of the defects we observed were conditions that REAC classified as
exigent health and safety violations. Because these conditions are life
threatening, HUD requires property owners to correct them within 72 hours of
inspection. Despite this requirement, we found at five of the properties we
visited that one or more of these violations had not been
Page 22 GAO- 01- 668 HUD Multifamily Housing
corrected. The violations included exposed electrical wiring and circuits
and an expired fire extinguisher. For example, at one California property,
an electrical panel on the outside of the building had exposed circuits.
According to the REAC official who accompanied us to the property, this
condition posed an electrocution hazard.
Many of the properties that HUD?s field offices classified as repaired had
uncorrected physical deficiencies, in part because field office staff did
not follow guidance for ensuring that all of the defects were corrected. For
example, on the basis of our document review and property inspections, we
estimate that properties for which HUD did not obtain a certification of
repairs and/ or a detailed repair plan were more likely to have at least 25
percent of their deficiencies uncorrected than properties for which HUD
obtained both of these documents.
Another factor that contributed to HUD?s misclassification of properties was
inaccurate reporting on the status of repair work. During our inspections of
the 35 properties, we found uncorrected deficiencies that the property
owners and managers had reported as repaired in their certification letters
and progress reports to HUD?s field offices. For example, at one California
property, we found that some of the problems REAC had identified were still
present, including holes in the exterior walls and cracked walkways, even
though the property management firm had sent a letter to HUD stating it had
?completed all the necessary repairs listed in the [REAC] inspection summary
report.? On the basis of our inspections, we estimate that 60 percent of the
499 properties covered by our analysis had one or more deficiencies
incorrectly reported to HUD as repaired. (See fig. 8.) While we recognize
that some of the problems we found could have recurred after the property
owners completed the repairs, it is unlikely that this was the case in most
instances, given the severity of the deficiencies we observed. Properties
Were
Misclassified Because of Limited Compliance With Procedures and Inaccurate
Reporting on the Status of Repairs
Page 23 GAO- 01- 668 HUD Multifamily Housing
Figure 8: Estimated Percentage of Properties at Which One or More Defects
Were Incorrectly Reported as Repaired
Source: GAO?s analysis of documents from HUD?s field offices.
The results of an evaluation contracted by HUD?s Office of Multifamily
Housing were consistent with our findings. In September 2000, the contractor
inspected 13 Illinois properties whose REAC inspection scores fell within
the 31 to 59 scoring category and that HUD classified as repaired. At 9 of
the 13 properties, the contractor found that one or more of the deficiencies
REAC had categorized as ?major? and ?severe?
remained uncorrected. Despite these findings, HUD has not conducted further
evaluations of this type for properties scoring 31 to 59 on their REAC
inspections. As a result, HUD may be unaware of other properties with
uncorrected defects. Furthermore, at two of the properties, the contractor
noted that the owners had certified to completing repairs that had not been
made. HUD, however, did not pursue enforcement actions against the property
owners. Moreover, Multifamily Housing has not developed policies and
procedures for (1) informing property owners and managers about the
penalties they may face for providing false certifications to HUD or (2)
pursuing administrative and legal sanctions against owners who provide false
certifications. In our view, such policies and procedures would reduce the
likelihood of owners submitting false certifications of repairs to HUD.
Page 24 GAO- 01- 668 HUD Multifamily Housing
Our Office of Special Investigations investigated 10 cases from the
contractor?s evaluations and from the sample of properties we visited. These
cases indicated possible fraud or false statements by property owners or
managers about the completion of repairs. In three cases, we obtained
credible evidence that property managers had made false statements to HUD
when reporting that they had corrected physical deficiencies cited on REAC?s
inspection report. 8 In these instances, HUD accepted the false statements
as a basis to classify the properties as repaired. For example, in one case
the property manager wrote a letter stating that ?all items on the formal
inspection report have been resolved quickly.? When asked about the
unrepaired major deficiencies in the parking lot, building foundation, and
sidewalks identified in REAC?s inspection report, the property manager told
us that he ?didn?t
misrepresent much.? In addition, although REAC cited deteriorated stairways
as a ?severe? deficiency, both the on- site leasing manager and the
maintenance supervisor stated that this problem had not been repaired. We
referred this matter and the other two cases to the appropriate law
enforcement agencies for further action. Appendix I provides additional
information on the Office of Special Investigations? work.
HUD is taking some actions to strengthen its process for following up on
REAC?s inspections. In March and April 2001, we met with HUD to discuss
weaknesses we identified in HUD?s follow- up actions and possible actions to
correct them. Multifamily Housing officials told us they agreed that
improvements were needed in HUD?s procedures for ensuring that deficiencies
identified during REAC?s inspections of multifamily properties are
corrected. They told us that they were drafting revised guidance for the
field offices and would address the weaknesses we had identified as part of
this effort. The officials said that the guidance, among other things,
8 Although the property owners or managers for the remaining seven
properties submitted inaccurate certifications to HUD, our investigation
found evidence that this problem occurred because of miscommunication with
HUD officials or a misunderstanding of HUD?s requirements rather than an
intent to mislead the Department. For example, one property manager fully
implemented a repair plan that was approved by a HUD field official but did
not address all of the physical deficiencies identified by REAC?s
inspection. The HUD field official subsequently instructed the property
manager to submit a certification specifically stating that all of the
deficiencies identified by REAC had been corrected. In keeping with these
instructions, the property manager used this language in her certification
to HUD and, as a result, certified to correcting deficiencies that were not
repaired. HUD Plans to Strengthen
Its Inspection Follow- Up Process
Page 25 GAO- 01- 668 HUD Multifamily Housing
will set forth required language for owners? certifications of repairs and
will include procedures for verifying owners? completion of repairs through
site visits. In addition, the officials said that under the revised
guidance, properties whose physical inspection scores either go down or do
not improve between inspections may be subject to on- site reviews by HUD
field staff or may be referred to HUD?s Departmental Enforcement Center for
possible enforcement action. Also, the Enforcement Center- which follows up
on properties in the worst physical condition- has proposed new procedures
for verifying owners? completion of repairs and for monitoring the progress
of repairs at properties referred to the center. Under these proposed
procedures, the center will inspect either all or a sample of the properties
whose owners have certified to completing repairs to determine whether all
of the deficiencies identified by REAC have been corrected. In addition,
center staff would be responsible for monitoring the progress of repair work
at some properties.
HUD has had difficulty ensuring that agency staff and property owners are
meeting timeliness goals and requirements for addressing physical
deficiencies. Specifically, HUD?s multifamily field offices did not ensure
property owners? prompt correction of exigent health and safety violations
or timely submission of repair plans. Similarly, HUD?s Departmental
Enforcement Center- which handles properties with the lowest physical
inspection scores- infrequently met its timeliness goals for completing
evaluation reports on the properties referred to the center for follow- up
action. The center has taken actions to address this problem and has reduced
its backlog of old cases.
According to HUD?s guidance, any exigent health and safety violations cited
during a REAC inspection must be corrected by the property owner
immediately, if possible, but not later than 72 hours after the inspection.
Once the owner fixes the problems, he or she is required to submit a letter
to the appropriate HUD field office certifying that the violations have been
corrected. Until January 2001, HUD did not require an owner to submit a
certification within a specified time frame. Consequently, we found that for
the 416 properties covered by our analysis with exigent health and safety
violations and for which HUD received a certification letter, HUD?s field
offices often lacked assurance that property owners were correcting the
violations within the required time frame. Specifically, we estimate that
for 82 percent of these properties, the owners? certification letters were
not submitted to HUD within 72 hours of the inspection. Of the HUD Has Had
Difficulty Ensuring That Timeliness Goals and Requirements for Addressing
Physical Deficiencies Are Achieved
HUD Did Not Ensure Timely Actions by Property Owners
Page 26 GAO- 01- 668 HUD Multifamily Housing
properties in our sample for which a certification letter was submitted to
HUD more than 72 hours after the inspection, the elapsed time ranged from 4
to 371 days. Under regulations that became effective in January 2001, HUD
now requires property owners to file their certifications within 3 business
days of the inspection date. In April 2001, Multifamily Housing officials
told us that they were drafting revised inspection follow- up guidance for
HUD?s field offices that would reflect this requirement.
HUD?s guidance also states that the owners of substandard properties must
submit proposed repair plans to the appropriate HUD field office within 30
days of receiving the inspection results. However, we estimate that for 41
percent of the 484 properties covered by our analysis for which the owner
submitted a proposed repair plan, the submission date was more than 30 days
after the owner received the inspection results. Among the properties in our
sample for which a proposed plan was submitted to HUD more than 30 days
after the owner received the inspection results, the elapsed time ranged
from 32 to 222 days. Although HUD?s guidance describes the 30- day time
frame as a requirement, HUD officials told us that they treated it as goal
because they expected that some owners would require additional time.
HUD did not establish timeliness goals for property owners? completion of
repairs because the time required to repair a property depends on the extent
and nature of the deficiencies and the resources available to address them.
Also, as we discuss in this report, many of the properties that HUD
classified as repaired still had uncorrected problems. For these reasons, we
did not attempt to measure the time that elapsed between REAC?s inspection
of a property and the owner?s actual completion of repairs.
During the past 2 fiscal years, the Enforcement Center generally did not
meet its timeliness goals for completing evaluations of properties referred
to the center and documenting the results in a written evaluation report.
The purpose of the evaluation report is to outline the center?s basis for
its proposed follow- up actions, which may include requiring a property
owner to implement a repair plan or taking enforcement measures against the
property owner. Timeliness is particularly important for properties with
serious physical deficiencies because the tenants may be living in dangerous
or unhealthy conditions. However, in fiscal year 1999, the center did not
meet its goal for completing evaluation reports within 90 days for 96
percent of the properties that REAC referred to the center. Between fiscal
year 1999 and fiscal year 2000, the center substantially Enforcement Center
Frequently Did Not Meet Its Timeliness Goals for Evaluating Properties but
Has Made Improvements
Page 27 GAO- 01- 668 HUD Multifamily Housing
improved its average time for completing these reports, but it did not meet
its timeliness goal for 93 percent of the referrals it received in fiscal
year 2000. Specifically, the average number of days needed to complete the
evaluations declined from 304 days in fiscal year 1999 to 210 days in fiscal
year 2000. Recognizing that the 90- day goal was too ambitious, the center
revised its goal for fiscal year 2001 to 180 days.
The major reasons for delays included insufficient and inexperienced staff,
the time required to recruit and train staff, and a lengthy process for
reviewing proposed enforcement actions. According to center officials,
during its start- up phase, the center?s satellite offices were either
severely understaffed and/ or had a large number of inexperienced staff.
Many of these employees were selected either from a pool of unplaced HUD
employees resulting from a reorganization of HUD staff that occurred as part
of HUD?s 2020 Management Reform Plan or from non- multifamily program and
enforcement areas. Only a few of the staff were from multifamily housing.
Because the applicants lacked experience, the center had to spend
considerable time and resources addressing the training needs of those who
were hired. To ensure quality control and consistency of enforcement actions
among the satellite offices, the center?s headquarters required all action
plans- a critical part of the evaluation report- to be approved by a
headquarters attorney. Such reviews could take more than a month to
complete.
The center has taken actions to address most of these problems, which should
improve its timeliness in processing cases. In June 2000, the center hired
43 additional staff, mostly in the satellite offices. According to a senior
center official, the delay in hiring additional staff occurred because of a
lack of funding. Even with these new hires, well over 50 percent of the
center?s staff had little or no multifamily housing experience. Although the
center has assigned mentors and conducted extensive training, a significant
amount of training is still needed, particularly in servicing and
enforcement options for troubled multifamily properties. Lastly, in December
2000, the satellite offices were delegated authority to approve all final
evaluation reports and action plans for physical inspection referrals.
The Enforcement Center receives most of its referrals involving physically
troubled properties from REAC. As of September 15, 2000, 90 of REAC?s
referrals had been at the center for over a year without being closed. The
center made a specific effort to close these cases, and, as of November 30,
2000, the number fell to 70, a 22- percent decrease in a little more than 2
Enforcement Center Has
Reduced Its Backlog of Old Cases
Page 28 GAO- 01- 668 HUD Multifamily Housing
months. In addition to referrals from REAC, the center receives some
referrals from HUD?s multifamily housing field offices. 9 Over the same 2-
month period, the number of referrals from HUD?s multifamily housing field
offices that had been at the center for over a year declined by 55 percent.
Since these cases represented most of the oldest cases in each satellite
office?s portfolio, this decrease was a particularly significant
accomplishment. We reviewed several of these cases during our visits to the
satellite offices and found that they were often very complex and involved
some of the most physically distressed properties. Until September 2000, the
center was not routinely monitoring the number of and elapsed time for open
cases at each of its satellite offices. The center began monitoring these
cases on a monthly basis after we raised concerns about this issue with
senior center officials.
Although most of the properties in HUD?s multifamily housing portfolio for
which inspection results were issued in fiscal year 2000 are in satisfactory
condition, others have serious physical deficiencies. HUD?s establishment of
systems and procedures for inspecting multifamily properties and for
overseeing the owners? correction of physical deficiencies are positive
steps toward addressing the portion of the housing stock that is in
disrepair. However, poor compliance by HUD?s field offices with inspection
follow- up procedures and evidence of uncorrected deficiencies at properties
classified as repaired point to the need for improvements in the
Department?s process for correcting physical problems at multifamily
properties in substandard condition.
HUD could significantly improve its compliance with procedures for following
up on REAC?s inspections. HUD did not provide field staff and property
owners with clear guidance for performing certain follow- up procedures. As
a result, field staff sometimes classified properties as repaired before
receiving owners? certifications of repairs, and property owners submitted
certification letters and repair plans that did not meet HUD?s requirements.
However, even when the guidance was clear, field staff often did not perform
key follow- up actions. Because HUD has not used oversight tools, such as
its quality management review program, to assess the field offices?
implementation of the procedures, it was not in a
9 These cases generally involve property owners who did not cooperate with
HUD?s field offices in correcting physical deficiencies. Conclusions
Page 29 GAO- 01- 668 HUD Multifamily Housing
position either to detect extensive noncompliance with its guidance or to
take corrective measures. As a result of these oversight and procedural
weaknesses, HUD lacks assurance that property owners are correcting all
physical deficiencies.
HUD also does not have accurate information on the number of properties for
which repairs have been completed. Because HUD field staff did not comply
with inspection follow- up procedures and some property owners did not
accurately report the status of their repair work, most of the properties
that HUD classified as repaired in its database had uncorrected physical
problems. Furthermore, although a study contracted by HUD found evidence of
these problems, the Department has not implemented a process for verifying
the owners? correction of physical deficiencies. Moreover, HUD?s multifamily
housing field offices do not have policies and procedures for taking
corrective actions against owners who falsely certify to completing repairs.
As a result of these problems, tenants residing in properties that HUD
regards as repaired may be living in unsatisfactory conditions.
To improve the effectiveness of the Department?s process for ensuring that
owners of properties in substandard condition correct all physical
deficiencies and to ensure the accuracy of HUD?s information on the status
of repair work at these properties, we recommend that the Secretary of HUD
improve compliance with procedures for following up on REAC?s inspections
by informing property owners that (1) certifications of repairs must
explicitly state that all of the deficiencies identified by REAC?s
inspection and the owner?s physical survey have been corrected and (2)
repair plans should address all of the physical deficiencies identified by
REAC?s inspection and the owner?s physical survey;
strengthen oversight of the inspection follow- up process by using the
Department?s quality management review process to assess the extent to which
the multifamily housing field offices are (1) complying with guidance
pertaining to property owners? certifications of repairs, detailed repair
plans, physical survey results, and progress reports and (2) properly
classifying properties as repaired in the Real Estate Management System;
improve the accuracy of the Department?s data on the status of repair work
at multifamily properties by (1) removing the ?repaired?
classification in the Real Estate Management System from properties for
which the field offices did not receive a certification letter stating that
all Recommendations for
Executive Action
Page 30 GAO- 01- 668 HUD Multifamily Housing
of the physical deficiencies identified by REAC?s inspection and the owner?s
physical survey had been corrected and (2) issuing guidance to the field
offices on how to apply the ?repaired? classification to a property using
data input screens in HUD?s Real Estate Management System;
ensure property owners? compliance with HUD?s property standards by (1)
developing and implementing a system of on- site reviews to verify the
completion of repairs at samples of properties in substandard physical
condition that HUD?s field offices classify as repaired, (2) informing
property owners and managers about the penalties they may face for providing
false certifications of repairs to HUD, and (3) developing policies and
procedures for the multifamily field offices to follow in pursuing
administrative and legal sanctions against owners who provide false
certifications; and finally,
issue guidance to the multifamily housing field offices that incorporates
our recommended improvements in HUD?s inspection follow- up process,
including specific requirements for owners? certifications of repairs and
repair plans, on- site verification of repair work, and procedures for
pursuing sanctions against owners who submit false certifications.
We provided HUD a copy of this report for its review and comment. HUD
indicated that it generally agreed with the report?s recommendations and
that it had begun taking actions to address them.
In response to our recommendation to improve compliance with inspection
follow- up procedures by better informing property owners about HUD?s
requirements for certifications of repairs and repair plans, HUD said that
it had developed specific language for certifications of repairs and would
issue letters to owners that clearly explained HUD?s requirements for these
certifications. However, HUD did not indicate that it would issue
instructions to owners about the requirements for repair plans. We believe
that by issuing such instructions, HUD would increase the likelihood of
owners submitting repair plans that address all of the physical deficiencies
identified by REAC and the owner?s physical survey.
In response to our recommendation to strengthen oversight of the inspection
follow- up process by using the Department?s quality management review
process, HUD said that it had revised its procedures for quality management
reviews to include a review of the inspection files maintained by the field
offices. HUD also stated that it had devised a checklist for field office
supervisors to use in reviewing their staff?s compliance with inspection
follow- up guidance. Agency Comments
and Our Response
Page 31 GAO- 01- 668 HUD Multifamily Housing
HUD did not agree with our recommendation to improve the accuracy of data on
the status of repair work by removing the ?repaired? classification from
properties for which the field offices did not receive a complete
certification of repairs. HUD said this action would be
?counterproductive? and that subsequent inspections would accurately show
the condition of the properties. We disagree with HUD?s assertion that
correcting inaccuracies in its database would be counterproductive and
continue to believe that properly recording the repair status of properties
is an important aspect of HUD?s inspection follow- up responsibilities. We
also believe that correcting the data could be done as part of HUD?s follow-
up on future REAC inspections. HUD agreed with our recommendation to issue
guidance to field staff clarifying how to apply the ?repaired?
classification to a property. HUD said it would issue guidance which made
clear that a property should not be classified as repaired in HUD?s Real
Estate Management System until HUD receives a certification of repairs from
the owner.
In response to our recommendations for ensuring property owners? compliance
with HUD?s property standards, HUD said it would perform on- site reviews at
some properties to verify the owners? certifications of repairs, inform
owners about the penalties for submitting false certifications of repairs,
and issue guidance to field staff outlining the sanctions that should be
considered against property owners who make false certifications.
In response to our recommendation that the Department issue guidance to the
field offices that incorporates our recommended improvements in HUD?s
inspection follow- up process, HUD said that it would immediately issue
guidance that reflected our recommendations. HUD also indicated that it
would train field staff on the new guidance. The full text of HUD?s letter
is presented in appendix II.
We conducted this review from June 2000 through May 2001. We performed our
audit work in accordance with generally accepted government auditing
standards and our investigative work in accordance with standards
established by the President?s Council on Integrity and Efficiency.
Page 32 GAO- 01- 668 HUD Multifamily Housing
As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days after
the date of this letter. At that time, we will send copies to the Secretary
of Housing and Urban Development. We will make copies available to others on
request.
If you or your staff have any questions about this report, please call me at
(202) 512- 2834. Key contributors to this report are listed in appendix V.
Stanley J. Czerwinski Director, Physical Infrastructure Team
Appendix I: Office of Special Investigations? Findings
Page 33 GAO- 01- 668 HUD Multifamily Housing
From the sample of properties we visited and the properties a contractor
reviewed for the Department of Housing and Urban Development (HUD), we
identified 10 properties, located in three different states, that we
believed required additional investigation. Therefore, we referred these
matters to our Office of Special Investigations, the criminal investigative
unit within GAO. This office developed credible evidence that, for three of
the properties, false statements 1 were made to HUD about the condition of
the properties after the Department cited the properties for being in
substandard physical condition. The Office of Special Investigations has
referred these cases to the United States Attorney?s Office in the
appropriate jurisdictions. The following are two examples of the Office of
Special Investigations? findings.
In August 1999, HUD?s Real Estate Assessment Center (REAC) inspected the
property and found 189 deficiencies, 13 of which were categorized as
?severe,? 32 as ?major,? and 144 as ?minor.? Three of the ?severe?
deficiencies were also determined to be exigent health and safety
violations. The property received an overall physical inspection score of
49. Within 3 weeks of the inspection, the property manager notified HUD in
writing that the three exigent health and safety violations had been
corrected. In December 1999, HUD notified the property owner of the
inspection score and requested that the owner conduct a physical survey of
the property and submit a repair plan within 30 days of the notification. In
February 2000, HUD sent another letter to the owner, informing him that HUD
had not yet received the required survey or repair plan and notifying him of
the regulatory requirements for these documents. Two days later, the owner
submitted a letter to HUD by facsimile stating ?all
items on the formal [REAC] inspection report have been resolved quickly.? In
November 2000, the HUD project manager (i. e., the HUD field office official
responsible for the Department?s oversight of the property) conducted a site
visit to the property and found that some of the previously identified
deficiencies had not been corrected. The HUD project manager, who rated the
property?s physical condition ?below
average,? reported that he had closed out the earlier inspection on the
basis of the owner?s February 2000 letter stating that all items identified
by
1 Under 18 U. S. C. sect. 1001, it is a felony to knowingly or willfully make
any materially false, fictitious, or fraudulent representation, or make or
use any false writing or document in any matter, within the jurisdiction of
any department or agency of the United States. Appendix I: Office of Special
Investigations?
Findings Property 1
Appendix I: Office of Special Investigations? Findings
Page 34 GAO- 01- 668 HUD Multifamily Housing
REAC had been ?resolved quickly.? In December 2000, HUD notified the
property owner in writing of the results of the November site visit and
informed the owner of the ?below average? rating. In January 2001, the
property manager wrote a letter to HUD citing maintenance practices at the
property. In the letter, the property manager wrote that regularly scheduled
maintenance called for the exterior stairways to be ?power
washed, repaired and repainted? annually ?to prevent trip hazards.? In
February 2001, we inspected the property and interviewed its on- site
leasing manager and on- site maintenance supervisor. We also interviewed the
property manager- the author of the letters to HUD- who admitted to us that
the required corrections had not been made to the parking lot, building
foundation, and sidewalks, all of which REAC cited as ?major?
deficiencies. When asked why he had certified that these deficiencies had
been corrected, he stated, ?I didn?t misrepresent much.? In addition, both
the leasing manager and maintenance supervisor told us that the property?s
damaged stairways- which REAC cited as ?severe?
deficiencies- had not been repaired in over 2 years. In March 2000, REAC
inspected the property and found 117 deficiencies, 44 of which were
categorized as ?severe,? 13 as ?major,? and 60 as ?minor.?
The property received an overall physical inspection score of 46.
Approximately 3 weeks later, HUD notified the property owner in writing of
the inspection results and informed the property owner of the requirement to
conduct a complete physical survey of the property and to submit a written
repair plan. Two weeks later, the property?s manager orally informed HUD
that the exigent health and safety violations had been corrected immediately
following the inspection. Although the manager did not submit a written
certification of these corrections, the HUD project manager received
confirmation from the manager by telephone. The manager assured the HUD
project manager that the violations had been corrected, and the project
manager made a notation of this in HUD?s files.
In June 2000, the property manager submitted to HUD by facsimile a repair
plan dated May 2000. The repair plan stated that deficiencies in specific
units that had been identified by REAC?s March 2000 inspection had been
corrected. Specifically, the repair plan stated that the windows and window
locks in certain units, which REAC had found to be inoperable, had been
repaired, as had a broken window pane. REAC had classified these conditions
as ?severe.? The property owner never submitted the required written
certification to HUD that all physical deficiencies had Property 2
Appendix I: Office of Special Investigations? Findings
Page 35 GAO- 01- 668 HUD Multifamily Housing
been corrected. In November 2000, the HUD project manager again contacted
the owner by telephone, who indicated that ?all work is complete.?
In March 2001, we inspected the property and interviewed the property
manager. During our inspection, we found that none of the specifically cited
inoperable windows or the broken window pane had been repaired. In addition,
we identified several other uncorrected deficiencies that the manager said
he had corrected. The manager told us that he had not
?gotten around to [correcting] them.?
Appendix II: Comments From the Department of Housing and Urban Development
Page 36 GAO- 01- 668 HUD Multifamily Housing
Appendix II: Comments From the Department of Housing and Urban Development
Appendix II: Comments From the Department of Housing and Urban Development
Page 37 GAO- 01- 668 HUD Multifamily Housing
Appendix II: Comments From the Department of Housing and Urban Development
Page 38 GAO- 01- 668 HUD Multifamily Housing
Appendix II: Comments From the Department of Housing and Urban Development
Page 39 GAO- 01- 668 HUD Multifamily Housing
Appendix II: Comments From the Department of Housing and Urban Development
Page 40 GAO- 01- 668 HUD Multifamily Housing
Appendix III: Objectives, Scope, and Methodology Page 41 GAO- 01- 668 HUD
Multifamily Housing
Our objectives were to answer the following questions: (1) Are HUD?s field
offices complying with the procedures HUD established to ensure that the
physical deficiencies at multifamily properties in substandard condition are
corrected? (2) Have all physical deficiencies been corrected at multifamily
properties that HUD classified as repaired? (3) Are HUD staff and property
owners meeting the Department?s timeliness goals and requirements for
addressing physical deficiencies at multifamily properties? Our work focused
on the 528 metropolitan- area properties in substandard condition for which
HUD issued inspection reports and that its field offices classified as
repaired in fiscal year 2000. We estimate that 499 of the 528 properties in
this group required follow- up action by HUD. In conducting our work, we
reviewed documentation pertaining to HUD?s follow- up actions on REAC?s
inspections for a stratified random sample of 95 of these properties. In
addition, we visited 35 of the 95 properties in our sample to determine
whether the owners had corrected the deficiencies identified by REAC?s
inspections. On the basis of our analyses of the sampled properties, we
estimated the percentage of the 499 properties that did not meet certain HUD
follow- up requirements. Appendix IV provides information on our sampling
methodology and the precision of our estimates.
To determine whether HUD?s field offices complied with the Department?s
procedures to ensure the correction of physical deficiencies, we reviewed
HUD?s guidance to its multifamily housing field offices and instructions to
property owners on follow- up actions to REAC?s physical inspections. We
also interviewed officials from HUD?s Office of Multifamily Housing, Real
Estate Assessment Center, and selected multifamily housing field offices.
For each of the 95 properties in our sample, we requested documents from the
cognizant HUD field office staff pertaining to REAC?s physical inspection
and the actions taken by HUD and the property owner to ensure the completion
of necessary repair work. We reviewed and analyzed this information to
determine how frequently HUD field staff obtained required documents from
the property owners and managers, including (1) certification letters
stating that exigent health and safety violations and all other physical
deficiencies had been corrected, (2) detailed repair plans, (3) the results
of the owners? physical surveys, and (4) reports on the progress of repairs.
To determine whether physical deficiencies had been corrected at properties
that HUD classified as repaired, we inspected 35 of the 95 properties in our
sample during December 2000 and February 2001. For each of these properties,
we used REAC?s inspection reports to identify the deficiencies with the
property?s site, building exteriors, building Appendix III: Objectives,
Scope, and
Methodology
Appendix III: Objectives, Scope, and Methodology Page 42 GAO- 01- 668 HUD
Multifamily Housing
systems, and common areas that REAC had categorized as ?major? or
?severe.? For each of the deficiencies, we determined from HUD field office
documentation whether the property owner reported that the deficiency had
been repaired. We conducted visual inspections of the properties to
determine whether the deficiencies that met our criteria for review still
existed. REAC staff responsible for monitoring the quality of physical
inspections accompanied us on these inspections to provide technical
assistance. We also reviewed the results of similar inspections conducted by
a HUD contractor for 13 Illinois properties. Lastly, we referred to our
Office of Special Investigations 10 properties from our sample and the
contractor?s inspections where the results indicated possible fraud or false
statements by property owners or managers about the completion of repairs.
To determine whether HUD was meeting its timeliness goals and requirements
for addressing physical deficiencies at multifamily properties, we reviewed
the activities of both HUD?s multifamily housing field offices and its
Departmental Enforcement Center. We reviewed their guidance and procedures,
which set forth time frames for specific followup actions. For the
multifamily housing field offices, we reviewed and analyzed owners?
certifications of exigent health and safety violations and proposed repair
plans for the properties in our sample. Specifically, we determined whether
(1) owners? certifications that exigent health and safety violations had
been corrected were submitted to HUD within 72 hours of the inspection date
and (2) the owners submitted proposed repair plans within 30 days of
receiving the results of their REAC inspection. In making these
determinations, we used the date on the owner?s certification and repair
plan as the date they were submitted to HUD. We used the date on HUD?s
letter notifying an owner of the results of the REAC inspection as the date
the owner received the inspection results. For the Enforcement Center, we
analyzed information maintained by the center on the status of cases
referred to the center?s five satellite offices during fiscal years 1999 and
2000. Specifically, we determined the extent to which the center met its
timeliness goals for completing evaluation reports on the referred
properties. In addition, we determined the extent to which the center made
progress in completing action on cases that, as of September 15, 2000, had
remained unresolved for over a year. Finally, we spoke with officials from
the center?s headquarters and satellite offices about their efforts to
process cases more expeditiously.
We tested the data we obtained from HUD for reasonableness and completeness
and found them to be reliable for the purpose of our analyses. In addition,
we reviewed existing information about the quality
Appendix III: Objectives, Scope, and Methodology Page 43 GAO- 01- 668 HUD
Multifamily Housing
and controls supporting the data systems and discussed the data we analyzed
with agency officials to ensure that we interpreted them correctly.
We conducted this review from June 2000 through May 2001. We performed our
audit work in accordance with generally accepted government auditing
standards and our investigative work in accordance with standards
established by the President?s Council on Integrity and Efficiency.
Appendix IV: GAO?s Sampling Methodology Page 44 GAO- 01- 668 HUD Multifamily
Housing
This appendix describes the (1) methodology we used to select the samples of
properties we reviewed and (2) precision of the estimates we made from these
samples.
To select properties for review, we obtained a data extract from HUD?s Real
Estate Management System containing information, as of September 30, 2000,
on REAC?s physical inspections of properties in HUD?s multifamily housing
portfolio and the follow- up actions by HUD?s multifamily housing field
offices on these properties. This information included the date of the
inspection, the inspection score, and the status of repair work at each
property. We tested the data for reasonableness and completeness and found
them to be reliable for the purpose of our analyses.
Our data extract contained the results of approximately 27,000 inspections
of multifamily properties that REAC performed from the start of its
inspection process in 1998 through September 30, 2000. From this population,
we eliminated about 1,800 properties that had received more than one
inspection because we could not readily determine which followup actions
were associated with which inspection. From the remaining properties, we
then identified the 2,003 properties for which REAC issued the inspection
results during fiscal year 2000 and that HUD?s field offices classified as
repaired that year. We focused on this time period because HUD?s current
inspection follow- up procedures were implemented close to the start of
fiscal year 2000. From the population of 2,003 properties, we eliminated 331
properties because they were either not located in or near metropolitan
areas, were not located in the contiguous United States, or did not have a
valid geographic code in HUD?s database. We eliminated these properties
because of the additional time and cost that visiting properties in these
locations would have required. For the remaining 1, 672 properties, we
identified the 550 properties that scored below 60 on their REAC inspections
(i. e., were in substandard condition) because HUD focuses its follow- up
actions on properties in this scoring range. We eliminated 22 of the 550
properties because HUD?s data indicated that they had a single dwelling unit
and, therefore, were not technically multifamily properties. We divided the
remaining 528 properties into three groups according to their REAC physical
inspection score: those scoring 30 and below, those scoring 31 to 45, and
those scoring 46 to 59. We sampled all five of the properties that scored 30
and below and drew simple random samples from each of the other two groups.
In selecting properties to review from these samples, we eliminated those
that did not require follow- up action by HUD because (1) their REAC
Appendix IV: GAO?s Sampling Methodology
Appendix IV: GAO?s Sampling Methodology Page 45 GAO- 01- 668 HUD Multifamily
Housing
inspection scores were subsequently increased to 60 or above after the
property owner appealed the original score; (2) their mortgages were
foreclosed on or paid off by the owner prior to the completion of repairs;
or (3) they were insured under a risk- sharing program, which assigns the
responsibility for inspection follow- up actions to a local housing finance
agency. Our sample of properties for review consisted of 5 that scored 30
and below, 30 that scored 31 to 45, and 60 that scored 46 to 59, for a total
of 95 properties. Using statistical methods, we estimated that a total of
499 of the 528 properties we originally sampled from required HUD?s follow-
up and, therefore, met our criteria for review.
For each of the 95 properties, we reviewed selected documents from the
appropriate HUD multifamily housing field office pertaining to REAC?s
physical inspection and the field office?s actions to ensure the completion
of necessary repair work. In addition, we inspected a random subsample of 35
of the 95 properties. This subsample included all 5 properties scoring 30
and below, 10 properties scoring 31 to 45, and 20 scoring 46 to 59. The
number of properties in each group and our sample sizes are provided in
table 1.
Table 1: Number of Properties That GAO Sampled and Reviewed, by Scoring
Group Number of properties Scoring group Total Sampled
Reviewed by GAO
Inspected by GAO
30 and below 5 5 5 5 31 to 45 142 34 30 10 46 to 59 381 62 60 20
Total 528 101 95 35
Because we used a sample- called a probability sample- of properties to
develop our estimates, each estimate has a measurable precision, or sampling
error, which may be expressed as a plus/ minus figure. A sampling error
indicates how closely we can reproduce from a sample the results we would
have obtained if we had been able to review documentation for or inspect all
of the properties in the population from which we sampled. By adding the
sampling error to and subtracting it from the estimate, we can develop upper
and lower bounds for each estimate. This range is called a confidence
interval. Sampling errors and confidence intervals are stated at a certain
confidence level- in this case 95 percent. For example, a 95- percent
confidence level means that in 95 out of 100 instances, the sampling
procedures we used would produce a confidence interval containing the value
we are estimating. In making our estimates,
Appendix IV: GAO?s Sampling Methodology Page 46 GAO- 01- 668 HUD Multifamily
Housing
we appropriately weighted the results from our samples to represent the
properties in our universe. For example, while each property in the sample
scoring 30 or below represented only itself, each sampled property scoring
31 to 45 represented about four other properties, and each sampled property
scoring 46 to 59 represented about six other properties scoring in that
range. The confidence intervals for the estimated number of properties that
met our criteria for review and the estimates we made from our samples are
presented in tables 2 and 3.
Appendix IV: GAO?s Sampling Methodology Page 47 GAO- 01- 668 HUD Multifamily
Housing
Table 2 : Confidence Intervals for Estimates Relating to GAO?s Document
Review 95- percent confidence interval Description of estimate Estimate From
To
Number of properties that met GAO?s criteria for review 499 465 a 518 a
Percentage of these properties that did not have A letter certifying the
correction of some or all of the physical deficiencies identified by REAC b
30.9% 22.3% 39.6% A letter certifying the correction of all of the physical
deficiencies identified by REAC 67.6% 58.7% 76.5% A detailed repair plan
61.6% 52.4% 70.8% Interim progress reports from the owner 65.2% 56.1% 74.2%
Documented evidence of the results of the owner?s physical survey 71.7%
61.6% a 80.0% a
Number of properties with exigent health and safety violations that met
GAO?s criteria for review 460 426 a 479 a
Percentage of these properties that did not have A letter certifying the
correction of some or all of the violations 21.7% 13.5% a 31.9% a A letter
certifying the correction of all of the violations 29.4% 20.2% 38.6%
Number of properties with exigent health and safety violations that met
GAO?s criteria for review and for which HUD received a letter certifying the
correction of some or all of the violations 416 382 450
Percentage of these properties that did not have a certification letter sent
to HUD within 72 hours of the inspection date 81.7% 71.3% 89.5%
Number of properties that met GAO?s criteria for review and for which HUD
received a proposed repair plan from the owner 484 446 a 508 a
Percentage of these properties for which the owner submitted the proposed
repair plan to HUD within 30 days of receiving the results of REAC?s
inspection 41.0% 31.7% 50.2%
a These numbers were calculated using the binomial method suggested by Korn
and Graubard for calculating confidence intervals for proportions when
samples contain a small number of cases with a characteristic. For a
description of the method we used, see Edward L. Korn and Barry I. Graubard,
Analysis of Health Surveys (Wiley: 1999), pp. 64- 69. b The associated
estimates did not include certification letters for exigent health and
safety violations. We analyzed these letters separately.
Appendix IV: GAO?s Sampling Methodology Page 48 GAO- 01- 668 HUD Multifamily
Housing
Table 3 : Confidence Intervals for Estimates Relating to GAO?s Property
Inspections 95- percent confidence interval Description Estimate From To
Number of properties that met GAO?s criteria for review 499 465 a 518 a
Percentage of these properties that had One or more uncorrected deficiencies
82.7% 67.8% 96.3% At least 25 percent of the deficiencies uncorrected 55.0%
37.6% 72.4% One or more deficiency reported as repaired that was uncorrected
59.6% 41.5% 76.8%
Number of properties that met GAO?s criteria for review and for which a
certification of repairs and/ or a detailed repair plan were not obtained b
363 314 412
Percentage of these properties with at least 25 percent of the deficiencies
uncorrected c 66.1% 45.0% 85.6%
Number of properties that met GAO?s criteria for review and for which both a
certification of repairs and a detailed repair plan were obtained b 136 91
183
Percentage of these properties with at least 25 percent of the deficiencies
uncorrected c 31.0% 0.0% d 66.3%
Note: Except as noted, we used simulation techniques to estimate the
confidence intervals in this table because of the relatively small number of
properties we subsampled and inspected in each scoring category. a These
numbers were calculated using the binomial method suggested by Korn and
Graubard for
calculating confidence intervals for proportions when samples contain a
small number of cases with a characteristic. For a description of the method
we used, see Edward L. Korn and Barry I. Graubard,
Analysis of Health Surveys (Wiley: 1999), pp. 64- 69. b The associated
estimates did not include certification letters for exigent health and
safety violations.
We analyzed these letters separately. C We simulated the difference between
two groups of properties in the proportion of properties for which at least
25 percent of the deficiencies were uncorrected. The first group contained
properties for which a certification of repairs and/ or a detailed repair
plan were not obtained. The second group contained properties for which both
a certification of repairs and a detailed repair plan were obtained. In at
least 95 percent of these simulations, the proportion of properties with at
least 25 percent of the deficiencies uncorrected was higher for the first
group than the second group. d Although a relatively small number of
simulations contained no properties with this characteristic, we
know, on the basis of our document review and property inspections, that
there were at least three such properties.
Appendix V: GAO Contacts and Staff Acknowledgments Page 49 GAO- 01- 668 HUD
Multifamily Housing
Stanley J. Czerwinski, (202) 512- 2834 Richard A. Hale, (202) 512- 2834
In addition to those named above, Gwenetta Blackwell, Karen Bracey, Mark
Egger, Bess Eisenstadt, Bill Hamel, Tarek Mahmassani, John McGrail, Andy
O?Connell, Jerry Patton, Jay Raple, Russell Rowe, Rose Schuville, Jim
Vitarello, Mijo Vodopic, and Steve Westley made key contributions to this
report. Appendix V: GAO Contacts and Staff
Acknowledgments GAO Contacts Acknowledgments
(385863)
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