Housing Choice Voucher Program: Limited Indications of Potential Fraud against Participants Identified

With the goal of providing safe, decent, affordable housing, HUD provides rental assistance to low-income households through its HCV program, administered locally by approximately 2,200 PHAs around the country. In fiscal year 2016, the HCV program received approximately $20 billion in funding and provided rental assistance to approximately 2.4 million households. Local demand in the program may exceed voucher supply, and individuals may wait years before receiving a voucher. After receiving a voucher, participants have a limited amount of time to secure a rental. Accordingly, PHAs have issued alerts about criminals targeting program participants with fraud schemes, such as by claiming to offer admission to the program for a fee.

This report describes (1) the types of reported fraud schemes against HCV participants, including older adults, PHAs' awareness of such schemes and their frequency, and indicators of such schemes online; and (2) HUD's and PHAs' antifraud regulations, guidance, and information related to fraud risks affecting program participants. GAO reviewed online fraud alerts and consumer complaint data from calendar years 2011 to 2016; conducted a generalizable survey of PHA officials about their awareness of fraud against participants; interviewed agency officials and experts; and conducted online covert tests of 350 rental ads and 26 commercial websites. GAO visited eight PHAs, selected based on size and location, among other factors.

GAO is not making recommendations in this report. HUD had no comments on a draft of this report.

Public Housing Agencies (PHA) have reported various types of fraud schemes against Housing Choice Voucher (HCV) participants, including older adults, but were aware of limited instances of such schemes. Similarly, GAO identified few potential indicators of these schemes in online covert testing of rental ads and websites. According to GAO's analysis of fraud alerts and complaint data, the type of fraud participants may encounter—such as waiting-list, rental, and side-payment fraud—depends on where they are in the HCV process and whether they are applicants, voucher holders, or landlords, as shown in the figure below. For example, side-payment fraud involves agreements—mutual or compelled—in which the voucher holder pays additional rent or other payments to the landlord for benefits, for example to secure a rental or avoid eviction.

According to GAO's survey of PHAs representing approximately 1.9 million households, PHAs reported few incidents of the various fraud types, although side-payment fraud, a program violation, was noted most frequently. Specifically, GAO estimates that while 41 percent of PHAs were aware of instances of side-payment fraud in the prior year, most reported 2 to 5 incidents in the prior year. In addition, 3 to 10 percent of PHAs were aware of instances of the other types of fraud GAO identified. GAO's online covert testing also found few indicators of potential fraud. For example, some websites requested payment for information about the HCV application process, but none explicitly offered to do something prohibited by program rules, such as placing someone on a waiting list for a fee.

The Department of Housing and Urban Development's (HUD) and PHAs' antifraud regulations, guidance, and information largely focus on efforts to protect the HCV program. For example, PHAs are required by HUD to inform families of program-related fraud and abuse, including the prohibition against side payments. In addition, GAO found that several PHAs voluntarily provide targeted messages to participants about fraud schemes by outside parties. Through industry associations, PHAs have mechanisms through which they share best practices that could include these and other issues.

With the goal of providing safe, decent, and affordable housing to low- income families, the elderly, and the disabled, the U.S. Department of  Housing and Urban Development (HUD) supplements tenants’ rental  payments in privately owned housing chosen by tenants through its  Housing Choice Voucher (HCV) program. This program is administered  locally by approximately 2,200 Public Housing Agencies (PHA) around  the country. In fiscal year 2016, HUD received approximately $20 billion  for the HCV program, providing rental assistance to approximately 2.4  million households. Local demand in the program may exceed voucher  supply, and households may be on waiting lists for years before they  receive a voucher. In addition, after receiving a voucher, participants have  a limited amount of time to secure a rental. PHAs and others have issued  alerts about criminals targeting HCV program participants (including  applicants, voucher holders, and landlords) in potentially fraudulent  schemes, such as individuals who fraudulently claim to offer vouchers for  a fee.

You asked that we investigate possible fraud against HCV program  participants and examine applicable federal oversight, including any  preventive and educational measures taken to help identify and limit such  fraudulent activity affecting HCV participants—including older adults and  other vulnerable populations—and to provide information about fraudulent  activity identified to date. In this report, we describe (1) the types of  reported fraud schemes committed against HCV participants (including  older adults), awareness by PHAs and other relevant organizations of  fraud incidents and how often they occur, and indicators of such schemes  online; and (2) antifraud regulations, guidance, and informational  materials, if any, that HUD and PHAs have in place to identify and  mitigate fraud against program participants.

For our first objective, we employed a number of methodologies.  Specifically, to describe the types of fraud schemes reported as being  committed against HCV participants in 2016 and 2017, we searched for  fraud alerts that a nongeneralizable sample of 60 PHAs publicly posted  on the Internet and reviewed the 22 alerts (posted by 20 separate PHAs)  that we found. We also reviewed complaints from the Federal Trade  Commission’s (FTC) Consumer Sentinel database for calendar years  2011 through 2016. We reviewed complaint data to identify examples of  housing and HCV-specific fraud, including schemes affecting older adults.  We assessed the reliability of the data by interviewing officials and  reviewing related documentation, and found the data sufficiently reliable  for the purposes of our reporting objectives. We also interviewed PHA  officials about fraud schemes against HCV participants. Finally, we  identified key academic research that classified online rental fraud, and  interviewed one of the authors of the research.

To determine awareness of incidents of fraud schemes among PHAs and  other relevant organizations, we surveyed PHA officials and conducted  site visits to interview PHAs and other relevant organizations and experts.  In our survey of a nationally representative, random sample of executive  directors of 278 PHAs, we asked about their awareness of fraud against  participants, in the last year (spring 2016–spring 2017), within the  jurisdiction to which they provide oversight. If the executive directors  responded that they were aware of these schemes, we asked that they  provide information on the number of incidents, within their jurisdiction,  that they were aware of in the prior year. Examples of fraud types  included in the survey were promising placement or a higher place on a  voucher waiting list, selling fake vouchers, theft of security deposits,  requiring side payments and favors, and offering suspect credit-report  services. We surveyed executive directors from all 83 PHAs that  administered 5,000 or more vouchers as of the fourth quarter of 2015,  and a probability sample of 195 executive directors of PHAs with 1,000 to  4,999 vouchers. The survey had a response rate of 84 percent and is  generalizable to the full population of PHAs that administer at least 1,000  vouchers. In addition, we interviewed eight PHAs in total, from locations  in the Midwest, Northeast, and West Coast regions of the United States.  These PHAs were selected using criteria to provide a range of PHAs  across geographical locations and PHA size, among other factors.  Moreover, we also interviewed an HCV voucher holder about the holder’s  knowledge of fraud against participants. We also interviewed industry  experts—selected based on their expertise and experience with legal and  financial issues affecting older adults and low-income individuals—about  fraud affecting older adults, and about identity theft affecting low-income  individuals. Finally, we interviewed officials from the HUD Office of  Inspector General (OIG).

To identify indicators of fraud schemes online, we used covert testing to  investigate (1) a nongeneralizable sample of 350 rental advertisements in  a selection of U.S. cities across several rental websites, and (2) a  nongeneralizable sample of 26 commercial websites advertising  information on, or assistance with, the HCV program. For our sample of  rental advertisements, we counted any communications with online  advertisers as having an indicator of fraud if they contained requests such  as asking for a wire transfer of a security deposit or first month rent  without first offering to show the property. For commercial websites, we  used multiple search terms across two search engines to produce a list of  target websites. Using undercover identities, we visited each website and  input any requested information, including a name and e-mail address,  and made a payment if the website requested payment for a service. We  also asked website operators whether they could place us on a waiting  list. Because covert testing of advertisements and websites was carried  out on a nongeneralizable sample, results of this effort are also  nongeneralizable.

To describe antifraud regulations, guidance, and informational materials,  we reviewed relevant HUD regulations and policy documentation, as well  as informational materials developed by the eight PHAs we interviewed,  designed to educate HCV participants about the program. We interviewed  PHA officials about the HCV program and about the information they  provide to participants. We also interviewed officials from FTC, the  Consumer Financial Protection Bureau, the HUD OIG, the U.S. Postal  Inspection Service, and the Department of Health and Human Services  about practices used by federal agencies to inform the public about fraud- related issues. For additional details on our scope and methodology, see  appendix I.

We conducted this performance audit from May 2016 to December 2017  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. We conducted our related  investigative work from January 2017 to July 2017 in accordance with  investigative standards prescribed by the Council of the Inspectors  General on Integrity and Efficiency.

The HCV program, administered by HUD, subsidizes housing costs for  low-income households in the private rental market. Because HUD  provides HCV assistance directly to the household, participants are able  to find their own housing, including single-family homes, townhouses, and  apartments. If the household moves out of the unit, it can move with  continued assistance to another private rental unit.

PHAs administer the HCV program at the local level, while HUD  administers funding and furnishes technical and professional assistance  to PHAs in planning, developing, and managing the program.  Approximately 2,200 PHAs across the country administer the voucher  program on HUD’s behalf, managing day-to-day operations in the HCV  program, including the application and voucher distribution processes, as  well as housing inspection and approval. PHAs are responsible for  ensuring that rents are reasonable, determining households’ eligibility,  calculating and periodically redetermining households’ incomes and rental  payments, and making subsidy payments to landlords. In addition, PHAs  perform basic program functions, such as establishing and maintaining a  waiting list, processing tenant moves, conducting landlord and tenant  outreach, and reporting to HUD.

Local PHAs determine the eligibility of households, approve applications,  and distribute vouchers. In general, to be eligible to participate in the HCV  program, households must have very low incomes—that is, incomes not  exceeding 50 percent of the area median income. Moreover, at least 75  percent of new voucher program participants must have extremely low  incomes, not exceeding 30 percent of the area median income. Once a  household is approved by a PHA to participate in the program and finds a  rental unit, that household pays 30 percent of its monthly income, after  certain adjustments, toward rent. The remaining portion of the rent is paid  through the HUD-subsidized voucher. PHAs can pay subsidies to cover  between 90 percent and 110 percent of the fair market rent for their  areas.

The HCV application and rental process is displayed in figure 1.

The following applies in the HCV application process:

Households seeking to enter the HCV program may wait years for  their local PHA to announce an open application period. PHAs may  establish waiting lists if the number of applicants to the program  exceeds available vouchers, and may close the waiting list if it  contains more households than the PHA can assist in the near future.  Therefore, prospective applicants in some locations can wait years for  a local PHA to determine the eligibility of those already on the waiting  list—and provide vouchers to eligible individuals—before reopening  waiting lists to new applicants.

During open application periods, applicant households may encounter  processes and requirements that vary amongst PHAs. Applying for a  voucher from a local PHA may take place in person or online, while  PHAs may determine an applicant’s priority to receive a voucher by  varying methods, such as a random lottery amongst all applicants, or  on a first-come-first-serve ordering of when applicants applied.  Moreover, PHAs can establish local preferences for selecting  applicants from their waiting lists. For example, PHAs may give  preference to a household that (1) is homeless or living in  substandard housing, (2) is paying more than 50 percent of its income  for rent, or (3) has an older-adult household member. Regardless of  methods to determine eligibility, apply for, and obtain a voucher within  the HCV program, it is free to participants.

When an open application period ends and before determining  household eligibility, PHAs may initially put applicant households on a  waiting list. Because the demand for vouchers may exceed the supply  available to the local PHA, households that have already waited to  apply to the program may also wait years to receive a determination  of eligibility and receive a voucher.

After receiving a voucher, households must find eligible private- market rental housing within a limited time frame. A PHA will make  contact with and issue a voucher to a household that is determined to  be eligible and is subsequently selected from the waiting list.  Households receiving vouchers use them to subsidize their rents in  private apartments or houses available in the rental market.  Households must find housing quickly—generally within 60 days— unless the PHA grants an extension. In some cases, PHAs direct  voucher holders to websites dedicated to rentals in the HCV program,  where private landlords list available units.

When a voucher-holding household finds a unit that it wishes to  occupy—and reaches an agreement with the landlord over the lease  terms—the PHA inspects the dwelling and determines whether the  rent requested is reasonable. To be eligible, a rental unit must meet  HUD minimum housing-quality standards, and must provide an  acceptable level of health and safety. After the unit is inspected and  deemed eligible, the household signs a contract with HUD, and both  HUD and the household sign contracts with the landlord. The contract  stipulates that the PHA will make the housing-assistance payment to  the landlord and the household will pay the difference between the  housing-assistance payment and the rent. Landlord participation in  the HCV program is free, and landlords do not pay to maintain  compliance with the program. Moreover, the HCV program provides  for the use of vouchers across locations. Once a household receives  a voucher, it may use the voucher in any location in which a PHA  administers the voucher program, as long as it remains eligible.

Various Reported Fraud Schemes against Housing Choice Voucher Participants Can Occur, but PHAs Reported Limited Incidents, and GAO Covert Testing Found Limited Online Indicators of Fraud

Waiting-List, Rental, and Side-Payment Fraud Are among the Reported Types of Schemes That Can Affect Voucher Participants

Reported fraud schemes against program participants—including  prospective applicants, individuals on waiting lists, current voucher  holders, and landlords providing rental units—can occur at each point in  the HCV application and rental process, according to program officials  and our analysis of FTC complaint data. On the basis of our reviews of  fraud alerts issued by PHAs and complaints submitted to the FTC, the  type of fraud that participants, including older adults, may encounter  depends on where they are in the process and whether they are landlords  or renters. Fraudsters perpetrate reported schemes in a variety of ways,  such as through in-person impersonation of PHA staff or by manipulating  telephone numbers to convince landlords to make unnecessary  payments. Reported types of fraud schemes and when they could  potentially occur in the HCV application and rental process are displayed  in figure 2.

As shown in figure 2, various reported fraud types can be carried out  against HCV participants. While some fraud types are specific to the HCV  program, participants may also be victims of general rental-housing fraud.  The reported fraud types, which we identified through interviews with  PHAs and others and through an analysis of PHA fraud alerts and  Consumer Sentinel complaints, include the following:

Waiting-List Placement Fraud. In online or in-person settings,  fraudsters may claim they can provide a voucher, place applicants  onto a waiting list, or move individuals to a higher position on the  waiting list. In exchange, fraudsters may request a payment, or may  request information (such as name, credit-card number, and e-mail  address) that may put participants at risk of credit-card fraud or  identity theft. Waiting lists maintained by PHAs may open  infrequently, and program application processes and requirements  vary from location to location. Reported fraud schemes may take  advantage of applicant unfamiliarity with program rules, and target  those seeking to enter the program or awaiting a voucher.

Rental-Advertisement Fraud. Because they rent in the private market,  voucher holders are susceptible to online rental-fraud schemes.  Those who place online rental advertisements may request wire  transfers from prospective renters to secure fake rentals, or steer  potential renters to suspect credit-reporting services that offer  commissions to the scammers or realtor services that charge users a  onetime or recurring monthly fee.

Side-Payment Fraud. Officials from PHAs and other organizations  characterized side payments as two distinct activities—alternatively,  as landlord fraud against tenants on one hand, and mutually beneficial  agreements between tenants and landlords on the other. In exchange  for property rental or successful inspection, landlords or building  inspectors may fraudulently request additional payments or pressure  participants for other favors from voucher holders. Landlords may ask  tenants for a monthly payment above the agreed rent, or may require  HCV participants to pay for utilities when not required to in their rental  agreement. For example, a Midwest PHA we interviewed reported  being aware of coercive demands by landlords for side payments or  sexual favors in exchange for a rental unit. Side payments may also  be a mutual arrangement between landlord and voucher holders. For  example, voucher holders may make a payment above their monthly  rent—in violation of program rules—and in exchange the landlord  agrees not to report that there are unauthorized occupants living in  the unit, again in violation of program rules. A West Coast PHA we  interviewed characterized most side payments it is aware of as mutual  agreements of this type.

Security-Deposit Fraud. Because they rent in the private market,  voucher holders may encounter fraudsters advertising a rental and  requiring a security deposit from one or several prospective renters  even if there is no rental unit available or only one of the prospective  renters will ultimately obtain the rental.

Program-Compliance Fraud against Landlords. Fraudsters may take  advantage of landlord unfamiliarity with HCV program rules. In calls to  HCV program landlords, fraudsters mask their phone number with that  of the local PHA, and direct the landlords to make a credit-card  payment over the phone to purchase materials or to make a payment  in order to remain in compliance with program rules.

PHAs Are Aware of Limited Instances of Fraud Affecting Voucher Participants in Their Jurisdictions, with Side- Payment Fraud Reported Most Often

An overwhelming majority of surveyed PHAs did not report awareness of  any occurrences of most fraud types that could affect HCV program  participants, while those that were aware of fraud against participants  reported few instances, according to our survey results and interviews.  We surveyed a nationally representative sample of PHAs representing  approximately 1.9 million households. We inquired about incidents  occurring within their area of jurisdiction from spring 2016 through spring  2017. We asked about fraudsters promising placement onto or a higher  place on a waiting list, selling vouchers, stealing security deposits, or  offering suspect credit-report services; voucher holders and landlords  engaging in side payments; and landlords and building inspectors illegally  soliciting favors. Apart from incidents of side payments (discussed in  detail below), on the basis of PHA responses to our survey we estimate  that between 3 and 10 percent of all PHAs with 1,000 or more vouchers  were aware of any occurrences of the types of fraud schemes included in  our survey (see fig. 3). Further, when PHAs were aware of such fraud  schemes, most reported between 2 to 5 cases in their local area of  jurisdiction from spring 2016 through spring 2017. Our other sources of  evidence were consistent with our survey results. For example, we  interviewed officials with two PHA associations—representing  approximately 1,900 total PHAs—about fraud against HCV participants  (other than side payments). The associations reported that they were  unaware of widespread instances of these types of fraud against  participants.

PHAs were much more likely to report awareness of incidents of side  payments than the other types of fraud included in our survey, according  to our analysis of survey responses. As noted above, side-payment fraud  involves agreements—mutual or compelled—in which the voucher holder  pays additional rent or other payments to the landlord in return for  benefits, to secure a rental, or to avoid eviction. On the basis of survey  responses, we estimate that 41 percent of all PHAs with 1,000 or more  vouchers were aware of incidents of side payments in the prior year, as  shown in figure 3 above. Of PHAs reporting side payments, we estimate  that the vast majority (93 percent) were aware of 1 to 10 instances of side  payments in the prior year (spring 2016–spring 2017), with most reporting  between 2 and 5 incidents in the past year. Further, we estimate that 7  percent were aware of 11 or more instances in the prior year.

Officials from all eight PHAs we interviewed similarly told us that they  were aware of side payments, but some said that participants rarely  report cases of side payments to them. Because violation of HVC rules  could result in termination of a lease or loss of voucher for the recipient, it  is possible that side payments are not always reported to PHAs. Two  experts providing legal services to low-income individuals said that, in  regard to fraud affecting HCV participants, landlord requests for side  payments is relatively more common than other types of fraud. In  addition, a current voucher holder told us about personal experiences  involving requests for such payments by landlords, but also said that he  or she had not experienced any other types of fraud.

In response to our open-ended survey question on other fraud not  specifically mentioned in the survey, three PHAs in two regions reported  variations of a type of fraud that intends to convince landlords that they  are not in compliance with HCV rules, and that they must make a  payment over the phone. Although this type of fraud was not included  explicitly in our survey and is therefore not included in figure 3 above, in  survey comments one West Coast PHA and two PHAs in the Southeast  reported instances of this type of fraud. In open-ended survey comments,  a West Coast PHA reported being aware of two attempts of similar fraud,  in which fraudsters called landlords and asked them to make a credit-card  payment over the phone to maintain program compliance. Similarly, two  southeastern PHAs also reported being aware of instances of similar  fraud schemes in the last year, although neither provided the number of  cases reported to them. Furthermore, another West Coast PHA that was  not included in our survey issued an online alert about scammers calling  landlords, masking their actual phone number with the PHA’s phone  number, and stating that in order for the landlord to maintain program  compliance, the landlord must make a credit-card payment over the  phone to purchase a program manual. In an interview, officials from this  PHA reported being aware of 36 attempts of this fraud type against  landlords from September 2015 to April 2017.

According to PHA officials, fraud schemes generally have not targeted  older-adult HCV participants. In survey responses, a limited number of  PHAs reported fraud against older adults. For example, we estimate that  of PHAs reporting awareness of side-payment schemes, very few PHAs  (about 8 percent) were aware of instances in which landlords targeted  older adults in side-payment requests. Moreover, an official from one  PHA we interviewed stated that because older adults are likely to have  advocates helping them to find housing, they are less likely than other  HCV participants to be victims of fraud. Similarly, one expert providing  legal services to older adults in the HCV program indicated that project- based participants—who rent units only in specific buildings—are more  likely than HCV participants to be targets of in-person fraud because they  are located in identifiable properties.

Several PHAs issued fraud alerts about schemes against participants, but  officials at PHAs we interviewed about some of the alerts told us that  incidents of these fraud types were limited. Specifically:

A Midwestern PHA issued an alert about an individual promising a  voucher for a fee and meeting victims in person to receive payment.  In a follow-up interview, PHA officials stated that, in total, they  received five to seven reports about this fraud. Each of these cases  occurred while the PHA’s waiting list was open in 2015. A nearby PHA  also reported that when its waiting list was open in 2011, an individual  with fake PHA credentials fraudulently took payment from individuals  and promised to move them to the top of the waiting list. The PHA  was aware of 10 individuals who were victims of the fraud, and  estimated that they each paid about $200 to the perpetrator.

A West Coast PHA issued an alert about a website charging  applicants to submit a program application. However, in an interview  the PHA reported awareness of only one case over the last 3 years of  fraud committed by outside parties against voucher participants.

Although instances of fraud against HCV participants reported to PHAs  appear relatively rare, participants who provide personal information to  unknown individuals are still at risk for identity theft, according to some  experts we interviewed. Two identity-theft experts stated that credit-card  fraud is likely if individuals enter payment information in unverified sites.  Furthermore, one expert stated that low-income individuals can be targets  for identity theft because fraudsters can use stolen identities with low  credit scores to obtain high-interest loans that they do not intend to pay  off.

Few Indicators of Potential Fraud Found in Online Covert Testing

In covert testing using undercover tools and techniques, we found no  indicators of fraud in rental advertisements posted online, and few  indicators of fraud in commercial websites offering information to  participants about the HCV program.

Through our online covert testing, we found no indicators of potential  fraud in 350 advertisements—selected using a random-selection  methodology—posted in online marketplaces across six cities. On the  basis of an academic study of online fraud schemes on rental  marketplaces and information provided by PHAs, we developed a list of  indicators of potential fraud. These indicators include requests for a wire  transfer of security deposit or first month rent without offering to provide  an in-person viewing of the property, or requesting an up-front or monthly  side-payment agreement as a condition of rental. In searches of one  rental website, we came across a small number of advertisements that  initially appeared to contain an indicator of potential fraud—specifically,  links to a website for specialized realtor services; covert testing of that link  did not find further indicators of potential fraud.

None of the 26 commercial websites we covertly tested contained text  explicitly stating that they would place or move someone up a waiting list  for a fee. Further, in e-mail correspondence with every website, we asked  whether they could help place us on a waiting list. Some website  operators never replied and some stated they could not do so, with none  agreeing to place us on a list. However, some websites used HUD’s  Equal Housing Opportunity logo, which might make them appear to be  associated with official government programs, while others requested  payment for suspect services and products. For example:

One PHA fraud alert specifically named one of the websites we tested  covertly, and indicated that the website fraudulently offered to submit  an application for the HCV program for a onetime registration fee. Our  covert testing found that this website displayed HUD’s Equal Housing  Opportunity logo, and charges a fee for a “guide” about the voucher  program, but at the time of our testing the website did not offer to  submit an application for a fee. Payment to the website resulted in  access to a guide and online forum containing a list of open PHA  waiting lists for the HCV program and links to publicly available PHA  websites.

One website we covertly tested requested payment for an e-book  guide to assist with the HCV application process. We made payment  but never received the e-book.

One website subject to covert testing stated that landlords in the HCV  program may deny or refuse to rent to a potential tenant based on his  or her credit-report information, and referred us to a suspect website  offering credit reports. The website claimed to offer a “free credit  report” and requested personal information including a Social Security  number and credit-card number. As part of our covert testing, we  provided a credit-card number. We also entered all zeroes as a Social  Security number on the site, prompting the site to state that it could  not provide us with a credit report, as we had not provided a valid  Social Security number. Despite that fact, the site charged our credit  card a recurring payment. In a phone call, a representative of the  website stated that, in the terms-of-use for the website, users are  informed that they must explicitly request that recurring payments be  terminated or that those payments would continue.

HUD and PHA Antifraud Efforts Focus Mainly on Fraud against the HCV Program; Some PHAs Voluntarily Provide Information about Fraud against Participants

HUD regulations and guidance and PHA informational materials pertinent  to fraud primarily focus on protecting the HCV program rather than  protecting participants from fraud committed by external parties. For  example, where the regulations mention fraud explicitly, it is generally in  relation to mitigating program violations by owners and voucher program  participants, recovering program losses from fraud, and assessing  participants, applicants, and owners for participation or continued  participation in the program.

Apart from requiring that PHAs inform participants about a prohibition  against side payments to landlords (a program rule violation), HUD’s  antifraud guidance, as outlined in the Housing Choice Voucher Program  Guidebook, generally focuses on preventing fraud against the program,  as opposed to fraud against participants. For example, an applicant  misrepresenting income and assets to obtain an HCV voucher and a  landlord bribing a PHA employee to approve substandard rental housing  are types of program fraud. See figure 4 for examples of HCV program- related fraud listed in the guidebook.

Education and outreach requirements for PHAs specified in the HCV  guidebook largely focus on providing adequate public notice of waiting-list  openings; an oral briefing when the PHA selects a family to participate in  the program; and a written briefing packet for participants, which must  include a variety of subjects related to program administration, leasing a  unit, and family obligations. Consistent with the guidebook, written or  online briefing materials from the eight PHAs we interviewed mention  various types of program violations. All but one specifically state that side- payment agreements between landlords and tenants are prohibited,  which, as discussed above, can be viewed as both fraud affecting the  participant and against the program. HUD directs PHAs to inform  participants that landlord–participant side payments are prohibited.

HUD provides guidance on how a PHA should handle a situation in which  the landlord is collecting side payments. If the PHA finds that the landlord  is collecting side payments, the PHA must notify the landlord to  immediately cease collecting these payments and require repayment to  the tenant of the full amount collected. The PHA must determine whether  the landlord also collected side payments from other participants and  follow up to require repayment. The amount can be repaid by offsetting  the amount due against future housing-assistance payments. At its  discretion, the PHA may terminate the housing-assistance payments  contract with the landlord immediately, even if the landlord has repaid  amounts due the tenant, but the PHA must cancel the contract if the  landlord fails to repay.

Although not required, several PHAs we visited or contacted voluntarily  provided informational materials to program participants that included  targeted messages and alerts notifying them of certain housing- assistance fraud by outside parties, such as voucher-sale fraud, or fraud  involving being placed on or moved up a waiting list. For example, in  program briefing documents given to participants, a northeastern PHA warns participants of housing-assistance scams,  and specifically advises participants not to pay to, among other things,  (1) be placed on or be moved up a waiting list or (2) receive an HCV  voucher or voucher extension; a different northeastern PHA advises HCV participants not to give  their voucher to anyone, including the apartment owner, agent, or  property manager; and not to give any money to the apartment  broker, owner, or agent until the PHA approves the selected  apartment; and a West Coast PHA advises HCV applicants and participants to be  aware of fraud, particularly schemes that require a payment to file an  application or to move up a waiting list.

In addition, PHAs share best practices that could include these and other  issues. For example, two industry associations representing  approximately 1,900 PHAs provide mechanisms for PHAs to share  information and best practices about HCV administration and issues  affecting HCV program participants and their communities. Both regularly  hold conferences, meetings, and other events that provide a venue for  members to discuss relevant issues. In addition, one of these  associations has published reports on issues affecting older adults and  connecting housing and community services, among other issues, while  the other published a report on issues related to rental reform proposals.

We provided a draft of this report for review and comment to HUD, FTC,  the Consumer Financial Protection Bureau, the Department of Health and  Human Services, and the U.S. Postal Service. We received e-mails from  HUD, the Consumer Financial Protection Bureau, and the Department of  Health and Human Services in which liaisons to GAO for those agencies  stated they had no comments on the report. We received technical  comments from FTC and the U.S. Postal Service, which we incorporated  in the report as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Housing and Urban Development, the  Federal Trade Commission, the Director of the Consumer Financial  Protection Bureau, the Secretary of Health and Human Services, and the  Postmaster General of the U.S. Postal Service. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please  contact me at (202) 512-6722 or shear@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix III.

Appendix I: Objectives, Scope, and Methodology

In this report, we describe (1) the types of reported fraud schemes  committed against Housing Choice Voucher (HCV) participants (including  older adults), awareness by Public Housing Agencies (PHA) and other  relevant organizations of fraud incidents and how often they occur, and  indicators of such schemes online; and (2) antifraud regulations,  guidance, and informational materials, if any, that the Department of  Housing and Urban Development (HUD) and PHAs have in place to  identify and mitigate fraud against program participants.

To address our first objective we used a variety of methods (see fig. 5).  Details on our use of these methodologies are described below.

Some PHAs issue online alerts and post these on their websites to inform  HCV applicants and participants about potential fraud schemes. We  initially identified PHA fraud alerts by performing online searches about  fraud in the HCV program. We then developed a structured search  method for identifying additional fraud alerts. To do this, in 2016 and  2017, we searched fraud alerts issued by a nongeneralizable sample of  60 PHAs; in total, 20 PHAs published 22 alerts about fraud affecting HCV  applicants and participants on their websites.

We identified our nongeneralizable sample of 60 PHAs using 2015 fourth- quarter Picture of Subsidized Households data from HUD, which contain  information on subsidized housing units by several types of programs  including the HCV program. The initial population contained PHAs  ordered by total number of HCV program vouchers available. We  selected our sample of PHAs based on those with the most vouchers.

We reviewed consumer complaint data from the Federal Trade  Commission’s (FTC) Consumer Sentinel database from calendar years  2011 through 2016. The date range of the data represents the most- recent years available at the time of our request. Our review of the data  focused on complaints related to the HCV program and companies that  offer rental housing services. We assessed the reliability of the data by  interviewing officials and reviewing related documentation and found the  data sufficiently reliable for the purposes of our reporting objectives.

We developed several categories for reviewing complaints based on  criteria on fraud schemes affecting HCV program applicants and  participants. To develop an initial list of categories, we selected a  subsample of the first entries in the data and independently created  categories that could be used to categorize the complaints in the  subsample. On the basis of this methodology, we identified a set of  defined coding categories, which were as follows:  1.  HCV-specific fraud,  2.  housing-related fraud (HCV not mentioned),  3.  housing-related fraud involving the purchase of foreclosed property,  4.  housing-related credit-report fraud,  5.  housing-related fraud requesting electronic wire transfer of funds,  6.  HCV-specific complaints where fraud is not mentioned or the nature of  7.  housing-related complaints where fraud is not mentioned or the nature  of fraud is unclear, and  8.  complaints not related to the scope of the engagement.

We also separately coded whether the subject matter of each complaint  specifically affected an older adult.

We applied a two-person data-coding process to ensure  intercategorization reliability. FTC delivered the data to us in batches  organized along search terms we provided. For several of the initial  batches we received, as a first step in the coding process, a coder  categorized each complaint into one of the categories above, and  simultaneously identified any complaints that contained relevant housing- related or HCV-related fraud types that we had not already discovered.  As a second step, a reviewer assessed a nonrandomized sample of the  data to determine whether coding was correct, and whether the coder had  identified any previously unknown fraud types in the batch. We repeated  this process for three of the five batches that we received, and reviewed  over 600 total complaints. Upon finding no new fraud types in the coded  data, we ceased analysis and did not code the remaining two batches we  received, which we deemed to contain complaint categories unlikely to  reveal new types of fraud.

We also interviewed PHA officials from eight PHAs (selected using a  methodology discussed below). Additionally, we reviewed an academic  study describing fraud against prospective renters in online marketplaces,  which allowed us to identify several fraud types that could be used  against HCV participants searching for rental units. The study used  crawling and automated interaction to identify fraud types. We  interviewed an author of the study to clarify research techniques. We  assessed that the individual was sufficiently independent. Our  methodological specialist assessed the study, and found its conclusions  to be sufficiently valid and reliable for our purposes.

We conducted a web-based survey with a nationally representative  stratified random sample of executive directors overseeing PHAs. In the  survey, we asked PHA executive directors and their staffs to provide  information on known fraudulent activities by fraudsters or impersonators,  fraudulent activities by landlords and building inspectors, and any other  information on fraudulent activities adversely affecting HCV program  applicants and participants from spring 2016 through spring 2017. We  administered our survey from April to May 2017. Estimated percentages  of the responses for all closed-ended questions from the survey are  included in appendix II.

We identified the population of PHA executive directors using 2015  fourth-quarter Picture of Subsidized Households data from HUD, which  contain information on subsidized housing units by several types of  programs including the HCV program. The Picture of Subsidized  Households data also contain the percentage of households using these  programs by factors such as age, income, and disability. We assessed  the reliability of the data for use as our sampling frame by reviewing  technical documentation, conducting electronic testing, and interviewing  officials who oversee the data system; we found the data sufficiently  reliable for our purposes.

Our initial population list contained a total of 2,243 PHA executive  directors, and our sample contained 278 PHA executive directors. We  stratified the population by size of PHAs as follows: We drew (1) a  certainty sample of 83 executive directors who oversaw at least one PHA  with 5,000+ vouchers (“large” PHAs) and (2) a probability sample of 195  executive directors who oversaw at least one PHA with 1,000–4,999  vouchers (“medium” PHAs). For purposes of discussion, we refer to the  experiences of PHAs in our analysis, although our sampling unit was the  executive directors of the PHAs.

To formulate our survey questionnaire on the types of fraud potentially  adversely affecting HCV program applicants and participants, we  conducted research on the topic of fraud by interviewing PHA officials,  reviewing fraud alerts publicly posted on the Internet by large PHAs, and  reviewing consumer complaint data. On the basis of the results of our  research, we developed our survey questionnaire to include questions on  external fraud such as (1) fraudsters or impersonators promising  placement on a voucher waiting list, (2) fraud offering higher placement  on voucher waiting lists, (3) fraud offering fake vouchers, (4) fraud  offering suspect credit-report services, (5) landlords requiring prohibited  side payments, (6) illegal solicitation of favors by landlords and building  inspectors, and (7) illegal solicitation of rental-unit security deposits by  landlords. We pretested our survey instrument with four PHAs located in  Maryland, Michigan, Ohio, and Virginia. We revised our questionnaire  language and format based on input received by officials in these four  PHAs in order to improve the clarity of the questions. An independent  survey specialist within GAO also reviewed a draft of the questionnaire  prior to its administration; it is available in appendix II.

We administered a web-based questionnaire accessible through a secure  server. When we completed the final survey questions and format, we  sent an e-mail announcement of the survey to 278 PHAs in April 2017.  The PHA points of contact were notified that the questionnaire was  available online and were given unique passwords and usernames. We  sent follow-up e-mail messages twice in May 2017 to those who had not  yet responded. We contacted remaining nonrespondents by telephone,  beginning in May 2017. The questionnaire was available online until mid- May 2017.

We obtained a weighted overall response rate of 84 percent, and the  response rate by stratum was 86 percent for our first stratum (“large”  PHAs) and 83 percent for our second stratum (“medium” PHAs). Because  we followed a probability procedure on random selections, our sample is  only one of a large number of samples that we might have drawn. Since  each sample could have provided different estimates, we express our  confidence in the precision of our particular sample’s results as a 95  percent confidence interval (e.g., plus or minus 10 percentage points).  This interval would contain the actual population value for 95 percent of  the samples we could have drawn. Confidence intervals are provided  along with each sample estimate in the report. All survey estimates  presented in this report are generalizable to the population of large and  medium PHAs, or to either the population of large PHAs or medium PHAs  analyzed separately. Unless otherwise noted, estimates for the full  population of large and medium PHAs have a margin of error for a 95  percent confidence interval within +/-4.5 percentage points or less. Unless  otherwise noted, estimates for the medium PHAs analyzed separately  have a maximum margin of error for a 95 percent confidence interval of  +/-5.4 percentage points or less. Unless otherwise noted, estimates for  the large PHAs analyzed separately have a maximum margin of error for  a 95 percent confidence interval of +/-4.5 percentage points or less.  Some questions had too few respondents to generate reliable estimates.  In these cases, we report the raw frequencies of respondents to our  survey.

To minimize nonsampling errors, and to enhance data quality, we  employed recognized survey design practices in the development of our  survey questionnaire and in the collection, processing, and analysis of the  survey data. To minimize errors arising from differences in how survey  questions might be interpreted and to reduce variability in responses that  should be qualitatively the same, we conducted pretesting of our survey  questionnaire; see discussion on pretesting above. To reduce  nonresponse, a source of nonsampling error, as mentioned above we  followed up by e-mail and by telephone with PHAs who had not  responded to the survey to encourage them to complete it.

To analyze open-ended comments provided by those responding to the  survey, we conducted a content analysis for the purpose of identifying  fraudulent activities against HCV program participants not addressed in  our survey questionnaire. We analyzed open-ended responses to identify  fraud types not directly addressed in our survey. We identified two  additional types of fraud. One type of fraud involved fraudsters posing as  PHA officials, calling landlords to convince them to make unnecessary  payments. This type of fraud against landlords is discussed in the report.  The other type of fraud identified was not related to participation in the  HCV program, and so is not discussed in the report.

Interviews of Government Officials, Nongovernment Officials, and Others

As part of our site visits, we interviewed officials from eight PHAs located  in three U.S. regions. On the East Coast, we interviewed officials with the  New York City Department of Housing Preservation and Development,  the New York City Housing Authority, and New York State Homes and  Community Renewal. In the Midwest, we interviewed officials with the  Cuyahoga Metropolitan Housing Authority, the Detroit Housing  Commission, and the Flint Housing Commission. On the West Coast, we  interviewed officials with the Housing Authority of the County of San  Bernardino and the Housing Authority of the City of Los Angeles. We  identified our interviewee selection on the basis of ensuring geographical  representation, budgetary considerations, metropolitan cities with a large  population, PHAs’ issuance of fraud alerts, PHA size—large, medium,  and small, PHA in states with a large number of older adults, and  consideration for overlap of other GAO ongoing work in the area of the  HCV program. Our sample of PHA interviewees is nongeneralizable.  Moreover, we interviewed an HCV voucher holder about the voucher  holder’s knowledge of fraud against participants.

We also interviewed government and nongovernment officials and others  based on their knowledge and expertise on the topic of fraud in general;  fraud education campaigns; fraud adversely affecting HCV program  applicants and participants; fraud affecting older adults; or identity theft.  Specifically in reference to government agencies, we interviewed officials  from the U.S. Federal Trade Commission (FTC), the Consumer Financial  Protection Bureau, the U.S. Postal Inspection Service, and the  Department of Health and Human Services about fraud types and about  practices used by federal agencies to inform the public about fraud- related issues. We also interviewed officials from the HUD Office of  Inspector General (OIG) about any past or ongoing work related to the  scope of our reporting objectives. For our interviewee selection, we  considered recommendations from other organizations such as PHAs and  legal-assistance organizations and reviewed prior GAO work on the issue  of older-adult financial exploitation. We also considered organizations’  characteristics in terms of fraud prevention or work performed in assisting  potential fraud victims. These characteristics include whether the  organization has an investigative unit that may have data on fraud schemes, posts fraud alerts on its Internet websites, has data on fraud cases,  collaborates with other groups on fraud awareness, has a fraud or complaint hotline, works on fraud prevention and provides support to victims of fraud, or works with vulnerable populations including low-income individuals or  the older-adult population on social or legal issues.

On the basis of an academic study about fraud in online rental  marketplaces (discussed above) and PHA-provided information, we  developed a list of indicators of potential fraud that might appear in online  advertisements. We used covert tools and techniques to test a  nongeneralizable sample of advertisements posted on commercial  websites commonly used by HCV voucher holders and landlords for  rental property listings, counting advertisements as potentially fraudulent  if the originator of the advertisement did any of the following:

Requested a wire transfer of security deposit or first month’s rent, or  both, without offering to provide an in-person viewing of the property.  For example, the person who posted the advertisement might state  that the rental is available, but that the person is currently not in the  country.

Provided a link to a suspect credit-report site within the advertisement  or subsequent correspondence. While requiring a credit report is a  normal part of the rental process, fraudsters may post a fake rental  advertisement and redirect victims to a credit-score company. If the  victim pays for the credit score, the credit-score company will pay the  fraudster a commission.

Stated in correspondence that the rental unit is no longer available,  but recommended a suspect site providing rental search, broker  services, or monthly payments toward purchase of a foreclosed  property.

Requested an up-front or monthly side-payment agreement as a  condition of rental.

Included an e-mail address directly in the text of the ad. According to  one academic expert on fraud, it was rare to see a legitimate  advertisement poster embed an e-mail address in a post, because  most people do not want to expose that information on the Internet.

Advertisements or correspondence containing an indicator of fraud do not  necessarily reveal the presence of a fraud scheme. For example, the  presence of an e-mail address directly in the text of an advertisement  may also indicate that the advertisement was posted by a realtor service.

We selected 6 geographically diverse cities nationwide for covert testing  of online rental advertisements. To generate a list of cities for possible  selection, we identified cities containing the 20 PHAs with the largest  number of HCV vouchers. We identified one commonly used online  housing-rental marketplace for the general public and another online  rental marketplace specifically dedicated to HCV rentals. We then  determined the total number of advertisements available across the two  rental websites in those cities. We used the following criteria to select  cities for covert testing:

From the 20 cities described above, we selected 3 cities with the most  available advertisements across the two online rental marketplaces.

From the 20 cities described above, we selected 2 cities where a  nearby PHA had closed its HCV waiting lists in the last half of 2016.

Outside of the 20 cities described above, we also selected 1 city with  a large number of available advertisements where we had previously  completed a site visit.

In each metropolitan area selected for covert testing, we identified  relevant online rental marketplaces operating in the area. We then used a  random-selection methodology to identify advertisements for testing from  amongst all current advertisements on each marketplace. In total, we  responded to 350 advertisements. On sites specifically dedicated to HCV  rentals, we generally sampled from among all current ads. On sites  featuring a mix of private rental ads, we developed a list of search  keywords and sampled only among ads that explicitly stated that they  would accept an HCV voucher. By e-mail, we contacted the originator of  each of the 350 advertisements we covertly tested and engaged in  correspondence.

To determine the extent of detected potential fraud in online sites, we  covertly tested websites identified as offering information or assistance  with the HCV program; note that this methodology is distinct from that  described above to covertly test advertisements. To discover sites for  investigation, we performed web searches with a variety of relevant  search terms using two popular search engines. We clicked through the  first few pages of each set of search results, and collected the names of  commercial sites that appeared either within search results or in ads  accompanying the results. Finally, we entered the address of each of the  websites we found into a separate search portal. This search portal  suggests possible competitor and similar websites for the target website;  we added websites discovered through this method to our list of websites  for investigation. In total, we tested 26 websites. If the website requested  a payment of any kind, we made the payment. We also corresponded  with each website, asking explicitly whether it could place us on an HCV  waiting list.

To address our objective regarding antifraud regulations, guidance, and  informational material, if any, that HUD and PHAs have in place to identify  and mitigate potential fraud against program participants, we reviewed  HUD regulations on the HCV Program and the Section 8 Management  Assessment Program. These regulations outline the requirements for  PHAs to perform education and outreach on the HCV program. We also  reviewed HUD’s HCV Program Guidebook. This guidebook provides  direction to PHAs administering the HCV Program on informing applicants  about program-related fraud.

We also reviewed written or online briefing materials for participants  developed by the eight PHAs we interviewed. These briefing materials  must include a variety of subjects, related to program administration,  leasing a unit, and family obligations.

Appendix II: Results of GAO’s Survey of Public Housing Agencies

To determine awareness of incidents of fraud schemes among PHAs, we  conducted a web-based survey to a nationally representative sample of  executive directors overseeing Public Housing Agencies (PHA) from April  2017 to May 2017. We solicited input on executive directors’ familiarity  with and awareness of fraud schemes against U.S. Housing and Urban  Development (HUD) Housing Choice Voucher (HCV) Program applicants  and participants. We distributed the survey to 278 PHAs, of which 233 (84  percent) responded. We stratified the population by size of PHA as  follows: (1) a certainty sample of 83 executive directors who oversaw at  least one PHA with 5,000+ vouchers (“large” PHAs); and (2) a probability  sample of 195 executive directors who oversaw at least one PHA with  1,000–4,999 vouchers (“medium” PHAs). Results of our survey are  generalizable to the entire population of large and medium PHAs. For a  more-detailed discussion of our survey methodology, see appendix I.

The results of our survey provide the input of PHA executive directors and  their staffs at the time they completed the survey in April and May 2017.  The questions we asked in our survey are presented below. Our survey  comprises seven top-level, fixed-choice questions; three subquestions for  each “yes” response to top-level questions; and one open-ended  question. In this appendix, we include all survey questions, and the  estimated percentages for the responses to the top-level questions.  Because of the limited number of respondents answering “yes” to the top- level survey questions, we could not generate reliable estimates for the  survey subquestions; therefore we present only raw frequency counts for  all subquestions except those corresponding to survey question 5 where  we present both estimated percentages and raw frequency counts for  those responses.

In our survey open-ended question, we asked PHA executive directors to  provide information on fraudulent activities affecting HCV program  participants other than those covered by the seven fixed-choice  questions. This element was our attempt at identifying fraud types not  directly addressed in our survey. While we are not providing the  responses to the open-ended question, our analysis of those responses  identified two additional types of fraud. One type of fraud involved  fraudsters posing as PHA officials, calling landlords to convince them to  make unnecessary payments. The other type of fraud identified was not  related to participation in the HCV program, and so is not discussed in the  report.

Fraudulent Activities by Fraudsters or Impersonators

Fraudulent Activities by Landlords and Building Inspectors

Tables 17–23 below present results for PHAs that responded “yes” to  question 5. Because of the number of respondents answering “yes” to  question 5, we were able to generate reliable estimates for question 5  subquestions and present both estimates and raw frequency counts.

Appendix III: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Kathy Larin (Director), Tonita  Gillich (Assistant Director), Scott Hiromoto (Analyst-in-Charge), Maurice  Belding, Yue Pui Chin, Colin Fallon, Dennis Fauber, Maksim Glikman,  Ronald La Due Lake, Jill Lacey, Won Lee, Robert Letzler, Barbara Lewis,  Olivia Lopez, Maria McMullen, Anna Maria Ortiz, Sabrina Streagle, Adam  Windram, and Helina Wong made key contributions to this report.

Also contributing were Marcus Corbin, Cory Marzullo, Wayne McElrath,  Josephine Perez, Samuel Portnow, and Paul Schmidt.