Real Estate Assessment Center: HUD Should Improve Physical Inspection Process and Oversight of Inspectors

Over 2 million low- and moderate-income households live in HUD-assisted (subsidized) or -insured multifamily housing. HUD's REAC uses contractors to inspect the physical condition of these properties to determine that they are decent, safe, sanitary, and in good repair. The 2017 Consolidated Appropriations Act, Joint Explanatory Statement, included a provision for GAO to review REAC's policies and processes.

This report discusses, among other things, (1) REAC's process for identifying physical deficiencies and (2) REAC's selection, training, and monitoring of contract inspectors and its own quality assurance inspectors. GAO reviewed HUD documents and data related to REAC's physical inspection process, use of contract and quality assurance inspectors, and enforcement processes. GAO also interviewed HUD officials and housing industry stakeholder groups and conducted discussion groups with contract and quality assurance inspectors.

The Department of Housing and Urban Development's (HUD) Real Estate Assessment Center's (REAC) standardized process to identify physical deficiencies at HUD multifamily properties (including public housing) has some weaknesses. For example, REAC has not conducted a comprehensive review of its inspection process since 2001, even though new risks to its process have emerged, such as property owners misrepresenting the conditions of their properties. A comprehensive review could help REAC identify risks and ensure it is meeting the goal of producing inspections that are reliable, replicable, and reasonable. In addition, REAC does not track its progress toward meeting its inspection schedule for certain properties, which could hinder HUD's ability to take enforcement actions. Finally, in the wake of concerns that inspections were not always identifying troubled properties, REAC and other HUD units, including the Office of Multifamily Housing, made eight recommendations in January 2017 to enhance the inspection process, but HUD had only approved three of these recommendations and had not implemented any of them as of December 2018.

REAC uses contractors to inspect properties; these contract inspectors are trained and overseen by quality assurance inspectors hired directly by REAC. However, REAC's processes to select, train, and monitor both contract inspectors and quality assurance inspectors have weaknesses.

Selection. REAC does not verify the qualifications of contract inspector candidates before they are selected to begin training to become certified inspectors. Formal processes to verify qualifications may help REAC identify unqualified candidates before they begin training and avoid expending resources on training these candidates.

Training. REAC lacks formal mechanisms to assess the effectiveness of its training program for contract and quality assurance inspectors. In addition, unlike other professional inspection organizations, REAC does not have continuing education requirements. Formal mechanisms to assess the effectiveness of its training program could help REAC ensure that its program supports the development needs of inspectors. Further, requiring continuing education could help REAC ensure that inspectors are current on any changes in REAC's policies or industry standards.

Monitoring. REAC has not met management targets for the number and timeliness of its inspection oversight reviews of contract inspectors. For example, REAC has not met its target of conducting three quality assurance reviews of poor-performing contractors per quarter. As a result, if deficiencies are not identified and recorded by contract inspectors, they may not be addressed in a timely manner. In addition, REAC's performance standards for its quality assurance inspectors have not been updated to reflect their broader job duties, such as conducting inspector oversight reviews and coaching and mentoring contract inspectors. Performance standards that are directly linked to these job duties would help ensure that inspectors are assessed on all of their key responsibilities.

GAO makes 14 recommendations to HUD to improve REAC's physical inspection process and its selection, training, and monitoring of contract and quality assurance inspectors, among other things. HUD agreed with 11 recommendations, partially agreed with 2, and neither agreed nor disagreed with 1. GAO maintains that its recommendations should be fully addressed to improve the inspection process.

Over 2 million low- and moderate-income households lived in multifamily  or public housing properties that receive assistance from the Department  of Housing and Urban Development (HUD) as of 2018. HUD is  responsible for ensuring that these properties are decent, safe, sanitary,  and in good repair. HUD’s Real Estate Assessment Center (REAC) is  responsible for conducting physical inspections of multifamily and public  housing properties and assigning them an inspection score from 0 to 100.  However, despite longstanding processes to inspect properties and take  action against owners who do not address physical deficiencies, HUD  continues to find some properties that are in poor physical condition and  have life-threatening health and safety issues. Additionally, Congress and  the media have raised concerns about properties that may have received  inspection scores not consistent with their physical condition. For  example, in 2015, Eureka Gardens, a multifamily housing complex in  Jacksonville, Florida, received a passing score of 85 on its REAC  inspection but was later found to have physical deficiencies consistent  with a lower score.

More recently, in 2018 a HUD Inspector General report found that  REAC’s inspection processes and controls had weaknesses. For  example, the Inspector General found that REAC did not always ensure  that contract inspectors met program requirements prior to conducting  inspections. The Inspector General made six recommendations to the  Deputy Assistant Secretary for REAC, which included (1) developing and  implementing written policies and procedures to help ensure that  inspectors meet program requirements (e.g., conducting a minimum of  250 inspections and having appropriate liability insurance) and (2)  establishing and implementing written processes and procedures to verify  the accuracy of the unit numbers sampled and entered for inspection by  the inspector. As of December 2018, REAC had proposed actions to  address these recommendations, and these actions were under review by  HUD management.

The 2017 Consolidated Appropriations Act, Joint Explanatory Statement,  Division K, includes a provision for us to report on REAC. This report  examines (1) REAC’s process for identifying physical deficiencies; (2)  REAC’s processes for selecting, training, and developing contract and  quality assurance inspectors; (3) REAC’s processes for monitoring  contract and quality assurance inspectors; and (4) HUD’s monitoring and  enforcement processes for addressing physical deficiencies and how  REAC’s information is used to support these processes.

To address the first objective, we reviewed REAC’s policies and  procedures for its physical inspection process, including how REAC  identifies physical deficiencies and assigns inspection scores. We  compared REAC’s management of its inspection process against federal  internal control standards. We also analyzed REAC’s Record and  Process Inspection Data for information on the number of inspections  conducted from fiscal years 2013 through 2017, trends in the inspection  scores over this period, and timing of inspections for multifamily  properties, among other items. To assess the reliability of the inspection  data, we met with REAC staff to learn how their data were structured and  reviewed relevant documentation. We also compared our statistics on the  number of inspections per year with comparable statistics developed by  REAC to verify that we were using the correct fields in the inspection  data. In cases where we had differences, we met with REAC staff to  obtain explanations for these differences and revised our analysis where  appropriate. Based on our overall assessment of the REAC data we  used, we found them to be sufficiently reliable for analyzing the number  and timing of inspections and trends in scoring.

To address the second and third objectives, we reviewed REAC’s policies  and procedures on selecting, training, developing, and monitoring  contract and quality assurance inspectors. We compared these policies  and procedures against federal internal control standards, key principles  in strategic workforce planning, and key practices in training and  development and performance management. For the third objective, we  also analyzed REAC data on the number and timing of its quality  assurance reviews and disciplinary actions for contract inspectors. To  assess the reliability of these data, we interviewed REAC staff about how  they collected data and helped ensure data integrity and reviewed  relevant documentation. In addition, we conducted reasonableness  checks on the data to identify any missing or erroneous figures. We  determined that the data were sufficiently reliable for analyzing the  number and timing of quality assurance reviews and disciplinary actions.

For our first three objectives, we interviewed REAC staff to understand  the inspection process and the procedures for selecting, training,  developing, and monitoring contract and quality assurance inspectors.

We also held one discussion group with contract inspectors and three  discussion groups with REAC quality assurance staff—inspectors and  supervisors—to obtain their perspectives on REAC’s inspection process  and the selecting, training, and monitoring of contract and quality  assurance inspectors. For the discussion group with contract inspectors,  we invited all of the inspectors who were attending a conference at  REAC’s headquarters in Washington, D.C., and for the discussion groups  with REAC’s quality assurance staff, we reached out to all quality  assurance staff and coordinated with REAC to arrange specific meeting  times to maximize the number of participants. Additionally, we interviewed  representatives from two home inspection associations and four housing  advocacy organizations to obtain their views on REAC’s physical  inspection process and use of contract and quality assurance inspectors.

To address our fourth objective, we reviewed HUD documentation and  relevant laws related to monitoring and enforcement processes for the  physical condition of public housing and multifamily properties. We  compared HUD’s current processes against relevant laws and guidance.  We reviewed data related to monitoring processes and enforcement  actions for properties administered by HUD’s Office of Public and Indian  Housing (PIH) and Office of Multifamily Housing (Multifamily Housing).  Additionally, we interviewed HUD staff about their processes to monitor  and enforce HUD’s physical condition standards of properties. We also  selected four PIH field offices and two Multifamily Housing field offices  based on low inspection scores to understand their role in monitoring the  physical condition of public housing agencies (PHA) and properties.  Appendix I contains a more detailed description of our objectives, scope,  and methodology.

We conducted this performance audit from July 2017 to March 2019 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.

HUD created REAC in 1997 to obtain consistent information on, among  other things, the physical condition of its public and multifamily properties.  REAC generally inspects properties every 1 to 3 years, using a risk-based  schedule (discussed in detail below). REAC developed a standardized  protocol to inspect properties, referred to as the Uniform Physical  Condition Standards. As part of the protocol, REAC also inspects  properties to identify health and safety deficiencies, including exigent  health and safety deficiencies, which are life-threatening and require  immediate action or remedy (such as exposed electrical wires or blocked  access to windows or doors in case of a fire). REAC’s data system  automatically generates an overall inspection score for the property from  0 to 100 based on the information an inspector records. At the end of  each day of an inspection, an inspector is required to inform a property  manager or other representative if the inspection identified exigent health  and safety issues. Before releasing the inspection score, REAC reviews  the inspection through a quality assurance process to ensure it is  accurate. Following verification of the inspection score, REAC releases  an inspection report to the property owner or PHA and the relevant HUD  program office. The inspection report contains the overall inspection  score, as well as more detailed information on physical deficiencies  identified during the inspection.

REAC primarily uses contractors—who are trained and certified in  REAC’s Uniform Physical Condition Standards protocol—to conduct  inspections of multifamily and public housing properties. In addition to  these contract inspectors, REAC uses quality assurance inspectors, who  are HUD employees, to oversee and monitor contract inspectors, as well  as to ensure that REAC provides accurate and reliable inspections. Both  contract and quality assurance inspectors complete several phases of  training on the inspection protocol, including online, classroom, and field- based training.

To procure inspections of HUD-assisted properties, REAC primarily uses  an auction process to award contracts either to eligible contract  inspectors or to companies that employ contract inspectors. This  process, called a reverse auction program, occurs at least once a quarter.  Contract inspectors or companies bid to inspect properties across the  United States and its territories in a web-based auction. At the close of the auction, REAC awards the inspection to whoever bids the lowest price  and is eligible to conduct inspections. The contract inspector then  schedules and performs the property inspections in accordance with  Uniform Physical Condition Standards protocol. According to REAC  officials, this process is designed to increase cost savings and small  business participation.

REAC is situated within PIH. Several departments within REAC are  involved in facilitating the physical inspection process:

Physical Assessment Subsystem (PASS): PASS has three primary  divisions that are responsible for different aspects of the inspection  process. The PASS Physical Inspection Operations division  coordinates the procurement of inspections. The PASS Quality  Assurance division evaluates and monitors REAC’s inspection  program to ensure reliable, replicable, and reasonable inspections;  trains contract and quality assurance inspectors; and provides  technical assistance to HUD-assisted properties and other relevant  stakeholders. The PASS Inspector Administration division monitors  the performance of inspectors and takes administrative actions, such  as decertifying inspectors who do not meet REAC’s standards for  inspectors.

Research and Development: REAC’s Research and Development  division produces data analysis and statistical reports on REAC’s  information products (e.g., physical inspection reports and Public  Housing Assessment System scores) and assesses these products to  ensure they are accurate and valid.

REAC is also responsible for evaluating additional conditions, beyond  physical conditions, of multifamily and public housing properties.  Specifically, REAC evaluates the financial conditions of multifamily  properties and assesses the financial and management performance of  public housing properties. This performance assessment is conducted  through the Public Housing Assessment System. REAC uses several  data systems to collect, score, and report on the financial and  management conditions of public housing properties, along with  evaluating the utilization of property modernization and development  funds (capital funds). We describe this process in more detail later in the  report.

HUD Offices Involved in Monitoring and Enforcement of Physical Condition Standards

HUD’s PIH, Multifamily Housing, and Departmental Enforcement Center  are responsible for ensuring that the owners of REAC-inspected  properties (including PHAs) correct the identified physical deficiencies.

PIH: This office helps low-income families by providing rental assistance  through three programs; our review focuses on physical inspections of the  public housing program. In 2018, HUD’s public housing program  provided low-rent housing units to over 1 million eligible households.  Public housing consists of reduced-rent developments owned and  operated by local PHAs and subsidized by the federal government. About  3,300 PHAs own and manage public housing properties. These  properties can include high-rise and low-rise buildings and scattered  single-family properties, or they can be part of mixed-income housing  developments, and they can range in size from fewer than 100 units to  more than 30,000 units. PHAs typically have an executive director to  manage their operations, as well as a governing board—called a Board of  Commissioners—to approve policy, clarify goals, and ensure compliance  with federal regulations. PHAs have contracts, called Annual  Contributions Contracts, with the federal government. Under the terms of  their contracts, PHAs agree to administer their properties according to  federal regulations, in exchange for federal funding in the form of  operating and capital grants. PIH is organized into six geographic  networks, each with several field offices.

Multifamily Housing: This office manages HUD’s portfolio of multifamily  properties and provides rental assistance through several programs,  including Section 8 project-based rental assistance, in which HUD  contracts with private property owners to rent housing units to eligible  low-income tenants for an income-based rent. Multifamily Housing also  oversees the Federal Housing Administration’s multifamily mortgage  insurance on loan originations and administers supportive housing for the  elderly and programs for persons with disabilities. Collectively, the  properties that Multifamily Housing oversees provided affordable rental  housing to more than 1.2 million low-income households in 2017.  Property owners or management agents of multifamily properties sign  business agreements with HUD. Under these agreements, owners or  agents agree to administer their properties according to federal rules and  regulations, and in exchange, among other benefits, they receive federal  assistance through mortgage insurance or housing assistance payments.  Multifamily Housing has 12 field offices across five geographic regions.

Departmental Enforcement Center: The Departmental Enforcement  Center is located within HUD’s Office of General Counsel and works with  several of HUD’s program offices, including PIH and Multifamily Housing,  to ensure that program funds are used according to federal regulations.  These program offices make referrals for the Departmental Enforcement  Center to review the financial and other conditions of properties receiving  rental assistance from HUD. Based on these reviews, the Departmental  Enforcement Center can take various enforcement actions, such as  imposing administrative sanctions to bar individuals from participating in  HUD programs or civil money penalties for violations.

REAC conducts inspections on multifamily and public housing properties  using a risk-based schedule defined in federal regulations. According to  our analysis of REAC inspection data, REAC conducted 44,486  inspections of multifamily properties and 15,156 inspections of public  housing developments from fiscal years 2013 through 2017. For  multifamily properties, REAC inspects properties every 1 to 3 years.  Generally, properties that receive an inspection score below 80 are  inspected within 1 year of the previous inspection; between 80 to 89  within 2 years; and 90 to 100 every 3 years.

The inspection frequency for public housing developments varies  depending on the overall size of the PHA (that is, the number of units and  properties that they manage), an individual housing development’s  inspection score, and the PHA’s overall performance on the Public  Housing Assessment System. For PHAs with 250 housing units or more,  REAC inspects developments every 1 to 3 years, using the same risk- based thresholds as Multifamily Housing. For small PHAs with fewer than  250 units, their score on the Public Housing Assessment System  determines the inspection frequency, with higher scores associated with  less frequent inspections. However, all developments—regardless of the  number of units—that receive an overall performance assessment score  (as part of the Public Housing Assessment System) of less than 60 out of  100 are designated to have a physical inspection every year.

REAC’s Inspection Process Has Some Weaknesses That May Hinder Its Ability to Identify Physical Deficiencies

REAC Has a Standardized Inspection Process for Identifying Physical Deficiencies at HUD- Assisted Properties

REAC’s Uniform Physical Condition Standards inspection protocol is  designed to help provide assurance that physical deficiencies will be  identified at HUD-assisted properties. Under the protocol, contract  inspectors inspect five areas of a property using a handheld data  collection device to help identify and record deficiencies (see fig. 1).

The devices have embedded software that provides step-by-step  instructions on conducting the inspection. The software helps to ensure  consistency between inspectors and consistency with the protocol,  according to REAC staff. The software includes a decision-tree model to  guide the inspectors on recording and classifying the severity of  deficiencies they identify. For example, if an inspector identifies a  deficiency with a door in a dwelling unit, the software will ask the  inspector to identify which door has the deficiency and the nature of the  deficiency (e.g., door lock does not work). The software then assigns a  severity level to the deficiency and, if it is severe enough, requires the  inspector to take a photo (see fig. 2).

REAC has a number of quality assurance processes intended to ensure  that contract inspectors identify deficiencies and conduct quality  inspections:

Collaborative quality assurance (CQA) review. In CQA reviews,  REAC quality assurance inspectors observe contract inspectors to  help ensure their inspections are accurate and consistent with  protocol. REAC uses CQA reviews to coach contract inspectors to  help improve their performance.

Post-inspection review process. Completed inspections receive two  levels of review by REAC quality assurance staff, who use software  that compares certain aspects of the current and previous  inspections—such as inspection scores, property profiles (for  example, number of units), site measurements, and time taken to  complete the inspection—and highlights large variances.

Quality control inspection (QCI). If REAC reviewers find large  variances in current and previous inspection scores and other  aspects, they may reject the inspection and schedule a QCI. The QCI  is a review of a previously inspected property to evaluate an  inspector’s performance and identify potential weaknesses in the  quality of the inspection. This review process requires a REAC quality  assurance inspector to conduct a second inspection of the same  property, including selecting the same sample of buildings and units of  the original inspection. Once the QCI is completed, REAC’s  reviewers, in collaboration with REAC’s Research and Development  division, identify any deficiencies missed and determine whether the  contract inspector was complying with REAC’s physical inspection  standards.

Property owners may appeal deficiencies REAC has identified during the  physical inspection. For example, an owner might appeal a deficiency  resulting from a window air conditioner blocking egress by providing  evidence that this is permitted by local building code. If the appeal is  successful, REAC removes the deficiency and the inspection software  updates the score.

Contract inspectors, REAC quality assurance inspectors, and  representatives of property owner associations with whom we spoke had  mixed views on REAC’s inspection process. Participants in three of the  five discussion groups we held with contract and quality assurance  inspectors said that the inspection process provides a comprehensive  review of a property and that the inspection software helps promote  consistency in inspections. Likewise, representatives from one property  owner association we met with said that the inspection process was more  standardized and less subjective than in the past. Representatives from  another association said that the inspection process effectively identified  deficiencies. However, participants in three of the same five discussion  groups with contract and quality assurance inspectors noted inconsistent  application of protocols and standards, noting that some cases were  unclear and required judgment in identifying deficiencies.

REAC’s inspection process has features similar to those of home  inspection organizations such as the American Society of Home  Inspectors (ASHI) and the International Association of Certified Home  Inspectors (InterNACHI). For example, ASHI and InterNACHI have  developed standards of practice that guide their inspectors on conducting  inspections, similar to the role of REAC’s Uniform Physical Condition  Standards inspection protocol. In addition, ASHI and InterNACHI require  their inspectors to inspect the same five areas of a property that REAC  does. Finally, ASHI and InterNACHI have codes of conduct that specify  what constitutes ethical conduct for their inspectors; similarly, REAC has  developed business rules that define ethical conduct for contract  inspectors.

REAC has made two major changes to the inspection process over the  past 6 years. First, in 2012, REAC updated its inspection software to  include the decision-tree model previously discussed and established a  point-loss cap to limit the amount by which a single deficiency in an  inspectable area could reduce the overall property score. For example,  if an inspector found numerous tripping hazards within the same  inspectable area, the inspector would record all instances of this hazard,  but the software would only deduct from the inspection score once rather  than multiple times, according to REAC staff.

Second, in 2017, REAC updated its compilation bulletin to address  concerns that property owners were making cheap, non-industry-standard  repairs to disguise deficiencies during a REAC physical inspection.  REAC now requires its inspectors to determine if deficiencies have been  corrected consistent with industry standards. For example, property  owners cannot use materials such as asphalt, caulking, spray foam, or  screws to cover or fill a crack or opening in an electrical panel because  that repair would not be consistent with industry standards (see fig. 3).

As shown in table 1, from fiscal years 2013 through 2017, the median  inspection scores for multifamily and public housing properties were in the  mid- to high-80s, with scores trending downward toward the end of that  time frame. (See apps. II and III for additional data on REAC scores.)

However, a small percentage of multifamily properties scored below 60,  which for multifamily properties is defined as a failure and triggers  enforcement actions that Multifamily Housing or the Departmental  Enforcement Center can take to require the correction of physical  deficiencies. Of 27,486 multifamily properties that were inspected during  fiscal years 2013 through 2017, 1,760 properties (6 percent) failed at  least one inspection, and 272 properties (1 percent of the total) failed two  or more inspections. Staff in Multifamily Housing field offices said multiple  failed inspections are a sign of serious owner noncompliance, such as an  owner who plans to sell and thus lacks motivation to make needed  repairs. Multifamily Housing staff said that they take enforcement action in  these cases.

A higher percentage of public housing properties scored below 60 during  this same period. Of the 7,699 public housing properties that were  inspected during this period, 887 (11 percent) scored below 60 for at least  one inspection, and 291 (4 percent) scored below 60 for two or more  inspections.

REAC Has Not Conducted a Comprehensive Review of Its Inspection Process since 2001

REAC has not conducted a comprehensive review of its inspection  process since 2001, even though new risks to its process have emerged  since then. A concern of REAC staff is that some property owners have  taken advantage of the scoring system and others have misrepresented  the conditions of their properties. Specifically, because more points are  deducted for deficiencies on the property site than for deficiencies in a  dwelling unit, some property owners prioritize site repairs over unit  repairs. Additionally, some property owners attempt to cover up, rather  than address, deficiencies—such as by using mulch on a building exterior  to hide erosion. REAC staff have also raised concerns about property  owners employing current or former REAC contract inspectors to help  prepare for an inspection, sometimes by guiding owners to repair just  enough to pass inspection rather than comprehensively addressing  deficiencies. REAC also continues to find that some contract inspectors  are conducting inspections that do not meet REAC’s quality standards  (discussed later in the report).

Property owner associations we met with also raised concerns about the  fairness of the inspection process. Specifically, representatives of two  property owner associations said that REAC’s inspection process  penalizes properties for items that do not affect the livability of a unit (e.g.,  property receives severe deficiency for chips on exterior bricks even  though the dwelling units are in good condition). Representatives from  one property owner association said that some properties’ scores have  fluctuated even though the condition of the property has not changed.  HUD’s Office of Inspector General (OIG) also identified some  weaknesses in the inspection process. Specifically, the OIG found that  REAC did not verify the accuracy of sampled units for public housing  agencies.

Further, REAC fundamentally changed the entities that conduct  inspections. In 1998, REAC employed a few large inspection companies  to conduct the inspections. However, in 2005, REAC introduced the  reverse auction program and opened up the inspection process to a  larger number of small businesses, which resulted in a change in the  composition of inspectors conducting the inspections.

One of the subgoals of REAC’s strategic plan for 2011–2015 was for  REAC to produce inspections of HUD-assisted properties that are  reliable, replicable, and reasonable. To meet this subgoal, the plan  states that REAC should assess its inspection process and apply lessons  learned over the last 10 years in order to improve the process. The plan  also states that REAC should conduct independent, internal audits and  reviews of the inspection process to identify strengths and weaknesses  and develop recommendations for improvement. Further, federal internal  control standards state that management should implement control  activities through policies, such as by periodically reviewing policies,  procedures, and related control activities for continued relevance and  effectiveness in achieving the entity’s objectives or addressing related  risks.

REAC officials stated that they understand the importance of conducting  a comprehensive review of the inspection process similar to what they did  in 2001 but that they have focused their staff and resources on other  priorities—for example, upgrading their technology and quality assurance  processes, hiring and training quality assurance inspectors, and  conducting targeted assessments of their inspection process in reaction  to specific events or risks. For example, REAC staff worked on an intra- agency team to develop recommendations to address weaknesses in the  inspection process that were identified as part of the assessment of  Eureka Gardens. (We describe this effort later in the report.) REAC staff  also said that they updated the compilation bulletin in reaction to property  owners who were making cheap, non-industry-standard repairs to  disguise deficiencies during a REAC physical inspection. In addition,  REAC staff noted that they meet biweekly to address certain parts of the  inspection process, such as the appeals and quality assurance processes. However, these efforts help identify weaknesses in the  inspection process related to specific risks and were not comprehensive  enough to identify and address broader risks. For example, REAC has  not assessed how changes to one part of its inspection process (for  example, changing how many points are deducted for a particular  inspectable area) can affect other parts of the process or result in  unintended consequences. Without a comprehensive review to assess its  inspection process, REAC cannot determine if it is meeting the goal of  producing inspections that are reliable, replicable, and reasonable.

REAC May Not Be Identifying All Properties in Need of More Frequent Inspections or Enforcement Actions

REAC may not be identifying all properties that need more frequent  inspections or enforcement actions because it does not consider  sampling errors of the inspection scores. REAC’s inspection process  does not require the inspection of all units and buildings within large  properties due to REAC’s limited inspection resources. For these  properties, the inspection process provides for inspecting statistical  samples of units and buildings. The results for the sample are then used  to estimate a score that represents the condition of the entire property.  Sampling introduces a degree of uncertainty, called sampling error, which  statisticians commonly express as a range associated with numerical  results. For example, for a property that scored 62 on its physical  inspection, REAC would consider this a passing score that requires an  annual inspection and no enforcement action. However, due to sampling  error, the range associated with this score could be between 56 on the  lower bound and 68 on the upper bound. HUD takes enforcement action  for multifamily properties with a score below 60.

Federal internal control standards state that management should use  quality information to achieve the entity’s objectives. In particular,  internal control standards note the importance of using the entity’s  objectives and related risks to identify the information requirements  needed to achieve the objectives and address the risks. REAC’s property  inspection scores are currently presented as numerical results without  any information on the range associated with the score. REAC’s prior  version of its scoring software automatically calculated the sampling  errors in the inspection scores, and this information was available for  inspection scores from fiscal years 2002 through 2013. However,  according to REAC staff, the current version of its scoring software does  not automatically calculate the sampling errors, in part because of a lack  of resources and also because they believe there is no need to calculate  them. Yet, in a review we conducted of REAC in 2000, officials told us  that they planned to adjust the score downward and take appropriate  actions for inspection scores with a lower bound that fell under an  administrative cutoff, such as 60 points. During our current review,  REAC staff told us that they did not implement this plan because they  would need to coordinate with other HUD offices, such as the Office of  Housing, and issue a notice in the Federal Register for public comment.

Based on our analysis of REAC inspection data, HUD potentially could  have taken enforcement actions against more properties if REAC had  taken sampling errors in inspection scores into account. For example,  from fiscal years 2002 through 2013, about 4.3 percent of inspections of  multifamily and public housing properties had an inspection score of 60 or  slightly above 60 but had a lower bound score under 60. In addition,  some multifamily and public housing properties might have been  inspected more frequently if the sampling errors were taken into account.  For example, federal regulations require inspections of multifamily  properties scoring 90 or greater once every 3 years; scoring 80 to 89  once every 2 years; and scoring less than 80 every year. Taking  sampling errors into account, about 7.1 percent of multifamily properties  inspected from fiscal years 2002 through 2013 might have been  inspected 1 year after the most recent inspection rather than 2 years.  Likewise, about 7.2 percent of inspections of multifamily properties might  have occurred 2 years after the most recent inspection, rather than 3  years. Without reporting on sampling errors and considering the results,  REAC will not identify some properties which could require more frequent  inspections or enforcement actions.

REAC Lacks Comprehensive or Organized Documentation of Sampling Methodology

REAC lacks comprehensive or organized documentation of the sampling  methodology it uses to make generalizable estimates about the condition  of properties with its scoring system. REAC’s documentation supporting  its sampling methodology is contained in five documents, none of which  provides a comprehensive description of the methodology with all  changes to the methodology incorporated. The main document that  describes the sampling methodology is a paper presented to the  American Statistical Association in 2002. This document provides a very  short summary of the sampling methodology, but some key assumptions,  calculations, and details are not included. For example, this document  does not show how REAC derived one of the variables used to calculate  the number of units to sample. When we asked REAC staff to provide us  with documentation on how they derived this variable, they could only  provide us with an email from 2005 from a former REAC statistician that  discussed some of the statistical considerations that went into the  derivation of the sample-size formula. The other four documents related  to the sampling methodology are dated prior to 2002 and include the  initial methodology developed and subsequent changes, but these also  do not provide complete information on why key assumptions were used,  or the documents lack certain formulas. Further, REAC has not updated  any of its documents related to the sampling methodology since 2002 to  reflect current practices.

Federal internal control standards state that management should  establish an organizational structure, assign responsibility, and delegate  authority to achieve the entity’s objectives. In particular, the standards  note the importance of developing and maintaining documentation of the  internal control system. This documentation provides a means to retain  organizational knowledge and mitigate the risk of having that knowledge  limited to a few personnel, as well as a means to communicate that  knowledge as needed to external parties, such as external auditors.  Further, this documentation of controls, including changes to controls, is  evidence that controls are identified, capable of being communicated to  those responsible for their performance, and capable of being monitored  and evaluated by the entity.

However, REAC does not have a process to ensure comprehensive and  organized documentation of the sampling methodology of its inspection  process. Instead, REAC relies on the institutional knowledge of individual  staff members. For example, when we requested documentation of its  sampling methodology, REAC relied on a statistician who had been with  the organization for many years to locate and provide us with the  documents we requested. In addition, we had to interview this individual  to better understand the methodology because key pieces of information  were missing from these documents. REAC staff told us that since the  inspection process has remained relatively consistent over time, they  have not seen the need to ensure that documentation of the sampling  methodology is comprehensive and organized. By interviewing multiple  individuals, reviewing multiple documents, and conducting our own  calculations, we were able to determine that REAC’s sampling  methodology is suitable for making generalizable estimates about the  condition of a property with the scoring system. However, the lack of  comprehensive and organized documentation could affect REAC’s ability  to preserve institutional knowledge and make changes or improvements  to its inspection process if key staff leave the agency.

REAC Does Not Always Meet Its Schedule for Inspecting Multifamily Properties or Track Progress toward Meeting Scheduling Requirements

REAC schedules inspections of multifamily properties based on the prior  REAC inspection score, but it did not meet its schedule for about 20  percent of inspections from calendar years 2013 through 2017. As  discussed earlier, federal regulations require inspections of multifamily  properties scoring 90 or greater once every 3 years, those scoring 80 to  89 once every 2 years, and those scoring less than 80 every year. Our  analysis of REAC inspection data showed that about 20 percent of the  properties were not inspected within 3 months before or after what HUD  has identified as the ideal date to conduct the inspection, called an ideal  future date. On average, REAC conducted inspections for these  properties about 6 months past the ideal future date. REAC staff told us  that there may be legitimate reasons for not conducting an inspection  according to the ideal future date. For example, Multifamily Housing can  delay an inspection because of natural disasters or major rehabilitations  to the property, among other reasons. However, REAC maintains  limited data on the reasons why inspections have been rescheduled or  cancelled. In addition, these data are not readily available to understand  retrospectively why an inspection did not occur on schedule. REAC also  does not track its progress toward meeting its requirement for inspecting  multifamily properties within prescribed time frames.

Federal internal control standards state that management should use  quality information to achieve the entity’s objectives. In particular, the  standards note the importance of designing a process that uses the  entity’s objectives and related risks to identify the information  requirements needed to achieve the objectives and address the risks.  Further, management should obtain relevant data from reliable internal  and external sources in a timely manner and process these data into  quality information that supports the internal control system.

Multifamily Housing depends on REAC inspections to provide  assessments of the physical condition of properties under its jurisdiction  (discussed in greater detail later in this report). REAC’s inability to adhere  to the inspection schedule for multifamily properties could hinder  Multifamily Housing’s ability to monitor the physical condition of properties  on a timely basis and take enforcement actions when warranted. The lack  of a mechanism to track REAC’s progress toward meeting its requirement  for inspecting multifamily properties also hinders REAC’s ability to  determine what factors are contributing to delays in conducting the  inspections. As a result, REAC lacks the information needed to determine  the scope of the problem and what actions it can take to ensure  multifamily properties are inspected on a timely basis.

REAC Is Piloting a Process for Hard-to-Staff Inspections but Lacks Plans to Evaluate Pilot Results

REAC has started a pilot program to staff inspections that contractors  typically do not bid on, but it has not developed a formal plan to evaluate  the results of this pilot. Since 2005, REAC has used the reverse auction  program to save money on inspections and increase small business  participation. However, under the reverse auction program, REAC has  faced challenges in obtaining bids for inspections in some urban areas,  such as Chicago, and some remote areas. To address this challenge, for  a select number of properties, REAC has implemented a pilot program as  an alternative to the reverse auction program. Under this alternative  process, REAC has awarded multiple Indefinite Delivery/Indefinite  Quantity (IDIQ) contracts to four companies to conduct these  inspections. The IDIQ contracts are intended to ensure that REAC  obtains physical inspections of all HUD-assisted properties on one task  order rather than allowing contractors to selectively choose properties  under the current program. The “all or none” approach, a key feature of  these IDIQ contracts, eliminates the need to re-auction the same  properties multiple times at higher prices to incentivize contractors to bid  on the property.

The pilot differs from REAC’s current physical inspection process in a  number of ways. The pilot requires the companies that have been  awarded the IDIQ contract to inspect all properties in a geographic region  rather than to select which individual properties they want to bid on.  Another difference is that the companies conduct quality assurance  functions normally conducted by REAC staff, such as ensuring that  inspectors are certified and identifying and addressing any gaps in  inspectors’ performance.

As of November 2018, REAC had focused its efforts on implementing the  pilot but had not developed a formal plan to evaluate its results. GAO’s  guide for designing evaluations states that a program evaluation is a  systematic study using research methods to collect and analyze data to  assess how well a program is working and why. Some key attributes of  effective program evaluation design include the following:  identification of data sources and collection procedures to obtain  relevant, credible information;  clear criteria for making comparisons that will lead to strong,  defensible evaluation conclusions; and an established evaluation scope that will ensure the evaluation is tied  to research questions.

Federal internal control standards also state that management should use  quality information to achieve the entity’s objectives. In particular, the  standards note the importance of management designing a process that  uses the entity’s objectives and related risks to identify information  requirements needed to achieve the objectives and address the risks.  Further, the standards stress the importance of management obtaining  relevant data from reliable internal and external sources in a timely  manner based on the identified information requirements.

REAC staff told us that they plan to measure the success of the pilot  program by determining whether companies are completing quality  inspections in a timely manner. However, REAC staff did not provide  details about how the results of the pilot would be compared to the  existing process and how the quality of inspections and the performance  of inspectors would be measured and assessed. Absent a formal process  that incorporates key attributes for effectively evaluating the results of the  pilot program, REAC may lack the information needed to determine if the  pilot is a success or whether changes are needed before moving from a  pilot to a permanent process.

HUD Has Made Limited Progress in Implementing Recommendations from an Internal Review of REAC

HUD has made limited progress in implementing recommendations from  an internal review of REAC that was conducted in 2016. HUD created the  Rapid Response and Resolution team—which consisted of staff from  REAC and other units within HUD, including Multifamily Housing—in  response to, among other things, problems associated with Eureka  Gardens, a multifamily property in Jacksonville, Florida. In 2015, REAC  conducted a physical inspection of Eureka Gardens, and the contract  inspector gave the property a score of 85. However, REAC later declared  that the inspection was out of standard when it learned that the contract  inspector had only inspected one of the two properties associated with  Eureka Gardens (the better of the two properties). REAC officials told us  that property management engaged in some deceptive practices (such as  making quick, cheap repairs) in an attempt to influence the inspection  score. According to these officials, the inspector did not conduct the  inspection consistent with REAC’s standards and was subsequently  decertified. REAC then reinspected the entire Eureka Gardens property  with its own quality assurance staff and found numerous deficiencies,  which resulted in the property receiving an inspection score of 62.

The Rapid Response and Resolution team developed 31  recommendations, 8 of which were specific to REAC, in January 2017.  As of December 2018, nearly 2 years after the recommendations were  developed and 3 years after the initial inspection of Eureka Gardens,  REAC had reached concurrence with Multifamily Housing on 3 of these  recommendations and asked for Multifamily Housing’s consideration of  the funding and rulemaking requirements for the remaining 5. HUD had  also not yet implemented the 3 recommendations on which it reached  concurrence.

Some of these recommendations address REAC’s management of the  inspection process. They include the following:

Weighting of dwelling units in inspection score. The review team  recommended that REAC consider increasing the weight of dwelling- unit deficiencies in the physical condition score. This recommendation  attempts to address the issue, discussed earlier, of property owners  who focus their repairs on common areas of the property over  dwelling units.

Notice provided to property owners of impending inspection.

This recommendation reduces the time that REAC can take to notify  property owners of an upcoming inspection from 15 days to 3 days for  properties that have failed their previous REAC inspection. REAC  staff said that this change would provide a more accurate picture of  the condition of properties since property owners generally address  the maintenance of the property just before an inspection. In addition,  this recommendation could address the concern discussed earlier of  property owners hiring current or former REAC contract inspectors to  help them prepare for an inspection. This recommendation should  also encourage property owners to maintain properties in good  condition at all times, according to REAC staff.

Exigent health and safety risks. Another recommendation was that  REAC work with Multifamily Housing and PIH to implement a risk- based exigent health and safety abatement verification policy.  According to REAC staff, some properties certify that they have  corrected exigent health and safety deficiencies when they have not  done so. We found that many inspections conducted from fiscal years  2013 through 2017 had at least one exigent health and safety  deficiency, and the percentage has been higher in recent years (see  table 2). Field office staff from PIH and Multifamily Housing may check  to ensure that these repairs have been made when they are onsite.  However, neither of these offices has a formal program to ensure that  property owners are actually addressing the exigent health and safety  issues. As a result, property owners may choose to correct only those  deficiencies that they believe will be checked by HUD field office staff,  according to REAC staff.

Federal internal control standards state that management should identify,  analyze, and respond to risks related to achieving the defined  objectives. By establishing the Rapid Response and Resolution team,  HUD took the steps of identifying the risks to its inspection process and  designing responses to these risks. However, the standards also call for  remediating identified internal control deficiencies on a timely basis. HUD  officials we met with attributed the delay in implementing the  recommendations to prior vacancies in some senior leadership positions,  including positions in Multifamily Housing. HUD’s delay in implementing  most of the recommendations from the Rapid Response and Resolution  team affects REAC’s ability to respond to weaknesses it has identified in  the inspection process in a timely manner.

REAC’s Processes for Selecting, Training, and Developing Inspectors Have Weaknesses

REAC Sets but Does Not Verify Qualification Requirements for Contract Inspector Candidates

Contract inspector candidates certify through an application that they  meet REAC’s qualification requirements, but REAC does not currently  verify that candidates have met these requirements before REAC selects  them for training and determines them to be eligible to inspect HUD- assisted properties. Before inviting candidates to participate in inspector  training, REAC requires them to certify that they meet three main  qualifications:  Inspections. Candidates must have conducted a minimum of 250  residential or commercial inspections.

Building trades knowledge. Candidates must have building trades  knowledge, such as knowledge of construction methods or electrical  systems.

Computer literacy. Candidates must be able to use email, the  internet, and Microsoft Windows.

However, REAC does not require documentation from contract inspector  candidates demonstrating that they successfully conducted 250  inspections. REAC officials told us that they intend to verify a sample of  the 250 inspections for each inspector, but as of November 2018 they  had not yet developed a process for doing so, such as by developing a  methodology for sampling and a timeline for contacting references. In  contrast, one of the home inspection associations we met with, ASHI,  requires certified inspector candidates to submit a list of 250 fee-paid  home inspections that meet or exceed the ASHI standards and to provide  a notarized affidavit validating those inspections.

In addition, REAC staff told us that some contract inspector candidates  have inspection experience based on inspections that are not as rigorous  as those conducted using the Uniform Physical Condition Standards  protocol. Participants in three of the four discussion groups we held with  REAC quality assurance inspectors and supervisors told us that they had  trained candidates who had included information on their applications  about previous inspection experience that was not well matched to  REAC’s inspection process. For instance, some inspector candidates  submitted Federal Emergency Management Agency inspections and U.S.  Army Office of Housing inspections as evidence of having completed 250  inspections, but REAC officials said these inspections are not as  comprehensive as REAC inspections because they do not assess  building systems, such as electrical or heating, ventilation, and air  conditioning systems.

Federal internal control standards call for management to recruit  competent individuals so that they are able to accomplish their assigned  responsibilities. In addition, key principles for workforce planning state  that agencies need to determine the critical skills and competencies  necessary to achieve their goals. REAC officials told us that the  inspector training program should weed out inspector candidates that  may not have the appropriate qualifications. However, although REAC  officials told us that inspector candidates have been removed from  training for not having the requisite skills, the officials were not able to  determine how many candidates had misrepresented their qualifications  on their application or had failed training for other reasons. REAC does  not verify the inspections submitted by inspector candidates—relying  instead on training to screen out unqualified candidates—and does not  determine the type of inspection that may count as a qualifying  inspection. As a result, REAC may be allowing candidates with  insufficient experience to proceed in the training process, which may  waste resources by training candidates who are unlikely to become  successful inspectors.

Training for Contract Inspectors Is Not Consistent with Key Attributes of Effective Training and Development Programs

Contract inspector candidates must complete several phases of REAC  training—online, in-class, and field—and pass associated examinations,  as well as a background check.

Online training. Inspector candidates first complete a 6-week online  training that includes web-based modules on the Uniform Physical  Condition Standards protocol and the use of the software system for  the handheld data collection device. Candidates must pass a pre- certification examination to progress to the next phase of training.

In-class training. After passing a background check, inspector  candidates then begin in-class training. This phase consists of 3 to 4  days of in-class training led by REAC quality assurance inspectors  and covers the compilation bulletin, Uniform Physical Condition  Standards protocol, best practices, simulations of the inspection  software, and hands-on practice exercises using the software. To  proceed to field training, inspector candidates must pass a  certification examination with a minimum score of 75 percent that  covers material from both the compilation bulletin and the Uniform  Physical Condition Standards protocol.

Field training. The last phase is a 5-day field training course that  culminates in a field examination. REAC quality assurance inspectors  lead and provide instruction for the first 4 days of field training.  Inspector candidates independently conduct a mock inspection using  the Uniform Physical Condition Standards protocol on the fifth day,  and a quality assurance inspector evaluates the candidate’s  performance.

REAC has made changes to training in recent years. For example, REAC  began using actual HUD-assisted properties, rather than simulated  properties, for the mock inspection. Some quality assurance staff and  property owner associations told us they regarded the changes made in  recent years to be beneficial. Participants in three of the four discussion  groups we held with quality assurance supervisors and inspectors, as well  as two representatives of property owner advocacy organizations, said  that, in addition to classroom training, field training on a physical property  helped to assess the competency of inspector candidates. In addition,  stakeholders—including property managers, contract inspectors, and  REAC staff—told us the mock inspections have been effective at  providing training to new inspectors, and that the professionalism of  contract inspectors has improved.

REAC contracts with a private vendor to provide the contract inspector  online training, and the vendor provides data and reports that REAC staff  use to track inspector candidates’ progress through the online training  modules. REAC officials told us they use this information to identify areas  of the training where candidates struggle and to help revise the training  material. In addition, REAC solicits feedback from contract inspector  candidates on the online training. REAC also uses key performance  indicators to track the number of inspector candidates who enroll and  whether they pass or fail training.

However, REAC does not currently have formal metrics or use data to  track the effectiveness of its three phases of training. For instance, REAC  does not track key measures of performance that could provide  management with information to improve the training process, such as  how individuals score in each section of the in-class training examination  and their field examinations. REAC also does not track the resources  spent on training, either in terms of funds spent or number of quality  assurance inspectors who participate.

According to key practices we have identified for training and  development, agencies should have processes to systematically track the  cost and delivery of training and measure the effectiveness of those  efforts. REAC officials said that they would like to have such  mechanisms and have developed a proposal to consolidate training  functions and better align training to REAC’s strategic goals. However,  the proposal does not include performance measures for evaluating the  effectiveness and efficiency of training. Use of cost-tracking and  performance measures tied to its strategic goal of improving the  inspection process could improve REAC’s ability to manage scarce  resources, evaluate the effectiveness of its training program, and plan for  future training.

Quality Assurance Inspector Training Requirements May Not Cover All Job Duties and Are Not Documented

REAC’s quality assurance inspectors—who train and oversee contract  inspectors—must be able to conduct physical inspections of properties as  well as assess contract inspectors’ performance. To assess contract  inspector performance, quality assurance inspectors oversee and mentor  contract inspectors during CQA reviews and provide them feedback in a  collaborative manner, an approach REAC management implemented in  2017. Some senior quality assurance inspectors are also responsible for  leading classroom and field training for contract inspectors.

According to REAC officials, REAC’s quality assurance inspectors receive  the same training as contract inspectors on the Uniform Physical  Condition Standards inspection protocol. However, REAC’s training for  quality assurance inspectors does not include formal instruction on how to  coach or provide feedback during CQA reviews. Instead, new quality  assurance inspectors are provided with on-the-job training, and they can  only conduct CQA reviews independently when quality assurance  supervisors are satisfied that they are sufficiently competent. Beyond the  on-the-job training, quality assurance inspectors are encouraged to  undergo additional online training on coaching, but there are no specific  training requirements related to conducting CQA reviews. Participants in  two of our three discussion groups with quality assurance inspectors told  us they were not sure how to provide the collaborative coaching and  mentorship REAC officials said they wanted. REAC also does not  specifically train quality assurance inspectors in how to provide classroom  and field training to contract inspectors, and participants in all three  discussion groups with quality assurance inspectors told us that  instructors do not seem to take a consistent approach to classroom and  field training.

In addition, REAC’s training requirements for quality assurance inspectors  are not documented in the quality assurance standard operating  procedures or other documents we reviewed. For example, REAC’s new,  more collaborative approach to CQA reviews was communicated to  quality assurance inspectors during staff meetings, but REAC staff have  not documented the approach or developed any specific training.

Some contract inspectors told us that quality assurance inspectors often  have less experience conducting inspections than they do. They  suggested that this gap may affect quality assurance inspectors’ ability to  competently oversee CQA reviews and conduct QCIs. REAC officials told  us they are considering changing quality assurance inspector training  requirements to be more rigorous than contract inspector training. For  example, staff from REAC’s Quality Control group, created in 2017, told  us that they are considering expanding training on the five inspectable  areas and assessing quality assurance inspectors to see if they need  additional support in any of these areas. They would also like to require  quality assurance inspectors to pass the training examinations with  minimum scores of 90 percent, instead of the score of 75 percent that  currently applies to both contract and quality assurance inspectors.  However, the Quality Control group has not implemented these changes,  officials said, because its staff resources are limited, and staff have been  reallocated to support other projects within REAC.

In comparison, one of the home inspector associations we met with,  InterNACHI, has specific requirements for its instructors. According to the  association, its instructors are certified master inspectors, have  completed a minimum of 1,000 paid inspections or hours of education or some combination thereof, and have conducted inspections for a  minimum of 3 years. The instructors also assist in developing the  educational material for training courses.

Federal internal control standards state that management should  demonstrate a commitment to recruit, develop, and retain competent  individuals. In particular, the standards note that agency personnel need  to possess and maintain a level of competence that allows them to  accomplish their assigned responsibilities. The standards also note the  importance of management enabling individuals to develop competencies  appropriate for key roles and tailoring training based on the needs of the  role. Without assessing whether training for quality assurance inspectors  is sufficient and requiring additional training as needed, REAC may not  have reasonable assurance that these inspectors have the skills required  to oversee contract inspectors.

Federal internal control standards also state that management should  design control activities to achieve objectives and respond to risks, and  they note the importance of documenting internal control—for example, in  management directives, administrative policies, or operating manuals.  These standards also state that management should establish an  organizational structure, assign responsibility, and delegate authority to  achieve the entity’s objectives. For example, the standards note that  effective documentation assists in management’s design of internal  controls by establishing and communicating the who, what, when, where,  and why of internal control execution to personnel. Without documenting  training requirements that encompass all job responsibilities, REAC may  not have reasonable assurance that the required skills and competencies  are clearly communicated to and understood by quality assurance  inspectors and aligned with job duties.

REAC Does Not Require Continuing Education for Contract and Quality Assurance Inspectors

REAC has ongoing requirements for contract inspectors to maintain their  eligibility, but these do not include continuing education requirements.  Contract inspectors must conduct at least 25 successful inspections per  year—that is, inspections found to be within REAC’s inspection  standards—and pass a background check every 5 years to remain  certified. REAC also offers optional training through online refresher  modules. However, REAC does not know how many contract inspectors  use these resources or how effective they are. In comparison, ASHI and  InterNACHI have continuing education requirements for their certified  inspectors. ASHI requires inspectors to earn 20 continuing education  credits annually. The qualifying training courses must be ASHI-approved,  the inspector must submit a signed affidavit attesting to having attended  the training, and ASHI spot checks to monitor compliance. InterNACHI  requires inspectors to earn 24 continuing education credits annually and  to pass the InterNACHI Online Inspector Examination with a score of 80  percent or better every 3 years.

REAC encourages quality assurance inspectors to take additional training  but does not require continuing education. REAC offers optional “dine- and-learn events” to update both contract and quality assurance  inspectors on policy and procedure changes and point out errors they  commonly observe. In 2017 REAC also began offering limited coaching to  contract inspectors by quality assurance inspection reviewers, a process  separate from CQA reviews. The reviewers compare physical defects  identified by contract inspectors to those that were identified by quality  assurance inspectors during QCIs of the same property. Reviewers then  provide one-on-one feedback to contract inspectors to address any  discrepancies in inspection scores. REAC officials said that for continuing  education they prefer self-paced learning to formal instruction because it  more appropriately matches the varying education needs of inspectors.

REAC’s strategic plan proposes developing REAC-wide policies for staff  training and skill development, but it does not include any requirements  for continuing education. Key practices we have previously identified for  training and development suggest that agencies should encourage  employees to take an active role in their professional development, which  can include requiring employees to complete a specific level of continuing  education. Ongoing training requirements for contract and quality  assurance inspectors could help REAC ensure that inspectors are up-to- date on REAC policies and industry standards. Such continuing education  could also refresh existing knowledge, helping contract and quality  assurance inspectors conduct high-quality inspections consistently.  Continuing education could also help quality assurance inspectors to  develop their mentoring and coaching skills, which would better enable  them to develop and oversee contract inspectors.

REAC’s Processes for Monitoring and Evaluating Contract and Quality Assurance Inspectors Have Weaknesses

REAC Uses Several Mechanisms to Monitor and Evaluate Contract Inspectors Collaborative Quality Assurance Reviews

REAC’s mechanisms to monitor and evaluate its contract inspectors  include collaborative quality assurance reviews, quality control  inspections, and various other monitoring tools.

REAC uses CQA reviews to monitor, evaluate, coach, and provide  feedback to contract inspectors. REAC has documented its processes for  conducting and reporting on CQA reviews in field training guidance,  standard operating procedures, and the compilation bulletin. To  determine which inspections will receive a CQA review, REAC combines  a risk-based approach—targeting low-performing inspectors—with  scheduling needs, based on the timing and geographic location of the  inspection. REAC conducted almost 3,000 CQA reviews from fiscal years  2013 through 2017. As shown in table 3, the percentage of inspections  each year that received a CQA review ranged from about 3 to 8 percent.

Our analysis of CQA review data shows that some contract inspectors are  not conducting inspections in accordance with REAC standards. From  fiscal years 2013 through 2017, an average of 17 percent of CQA reviews  resulted in contract inspectors receiving a rating that was outside of  REAC’s physical inspection standards, referred to as an outside standard  rating. This rating is based on the contract inspector committing at least 1  of 18 types of performance- or scheduling-related REAC protocol  violations, with 8 of the performance violations resulting in an automatic  outside standard rating.

The percentage of outside standard ratings was significantly higher in  fiscal years 2015 through 2017, as compared to 2013 and 2014 (see fig.  4). According to REAC officials, this increase was likely due, in part, to an  increase in the number of less experienced contract inspectors.  Specifically, from September 2013 through December 2015, REAC  attempted to expand the pool of contract inspector candidates by lowering  the required number of inspections from 250 to 50. REAC officials  confirmed that these inspectors were less experienced and more likely to  violate protocols.

As previously discussed, REAC has taken steps to make its CQA reviews  more collaborative, but some stakeholders said that challenges remain.  REAC’s 2015 standard operating procedures stated that the goal for CQA  reviews should not be to designate a contract inspector as outside  standard, but rather to ensure inspection accuracy and to improve the  knowledge of the contract inspector. However, it was not until more  recently that REAC management emphasized in several staff meetings  the need for quality assurance inspectors to take a collaborative  approach, according to REAC staff. Despite this new emphasis,  participants in a discussion group we held with contract inspectors told us  that they believe a punitive approach persists with some quality  assurance inspectors, that repeated pairings of contract and quality  assurance inspectors could lead to bias, and that contract inspectors who  receive a high number of CQA reviews may feel like REAC is targeting  them.

REAC uses QCIs to further ensure the accuracy of inspections conducted  by contract inspectors. As previously noted, a combination of factors can  lead REAC to reject an inspection and trigger a QCI, including significant  differences between the current inspection and previous inspections and  other contextual factors, such as the inspector’s past CQA review  performance. In a QCI, the quality assurance inspector reviews an  inspection report and then conducts a new inspection to identify potential  weaknesses and evaluate the inspector’s performance. The QCI results  in a new inspection score. REAC has standard operating procedures that  document requirements for scheduling, conducting, and reporting QCIs.

REAC completed 226 QCIs from March 2017 through June 2018. Our  review found that more than 50 percent of QCIs resulted in an outside  standard rating. On average, contract inspectors gave properties a score  that was 16 points higher than the score given subsequently by quality  assurance inspectors, indicating that those contract inspectors missed  deficiencies. Of these inspections, about 15 percent that had initially  received a passing score from the contract inspector failed the  subsequent QCI.

Other Monitoring Tools for Contract Inspectors

REAC also uses ratings and reports to oversee contract inspectors.  REAC assigns each contract inspector a rating based on a combination of  factors, including CQA results and percentage of inspections rejected,  and these ratings help target which inspectors should receive CQA  reviews and CQIs. REAC also produces two reports for all contract  inspectors to assist in its oversight:

Defect Comparison Reports compare the specific deficiencies  reported by an inspector to the frequency with which other contract  inspectors reported that same deficiency across properties. REAC  primarily uses the results to target areas to coach contract inspectors  who have been flagged for a QCI.

Defect Delta Reports compare deficiencies in a contract inspector  report to deficiencies a quality assurance inspector reported in a  follow-up inspection (usually a QCI). REAC primarily uses this  information to identify the types of deficiencies the contract inspector  is missing.

REAC Has Not Met Management Targets for Reviews of Contract Inspectors

REAC did not meet management targets for the number of CQA reviews  to be conducted in any quarter from fiscal years 2013 through 2017 (see  fig. 5). REAC officials told us their management target is to conduct three  CQA reviews for each high-risk contract inspector and two CQA reviews  for lower-risk contract inspectors each quarter. REAC officials told us that  in developing the targets, they attempted to balance risks to the quality of  inspections and resources available.

In addition, as of June 2018, REAC had not met management targets for  timeliness of QCIs in any quarter. REAC has no documented timeliness  goals for QCIs, but REAC officials told us that QCIs are supposed to take  place within 30 days of the original inspection date because the condition  of the property can change over time (see fig. 6).

REAC officials told us they did not meet these management targets for  CQAs and QCIs because they did not have enough quality assurance  inspectors. In addition, when quality assurance inspectors are pulled onto  other projects, such as supporting HUD’s efforts related to natural  disasters, REAC’s ability to conduct CQAs and QCIs is reduced. For  example, in fiscal year 2018, 28 quality assurance inspectors were pulled  offline to assist HUD in areas affected by hurricanes. REAC officials told us these temporary reassignments have affected their ability to implement  the quality assurance process. REAC staff told us that the quality of  inspections may have deteriorated because some contract inspectors  were aware that quality assurance inspectors would not be conducting  CQA reviews or QCIs during those post-disaster periods. REAC has  recently hired more quality assurance inspectors to help address staffing  shortages. In addition, REAC officials told us that they intend to take  into account the likely effects of natural disasters on their ability to  conduct quality assurance reviews when planning for these reviews in the  future, but REAC has not yet developed a plan to meet its targets that  includes, for example, mechanisms to mitigate resource constraints and  unforeseen demands on staff.

According to REAC’s strategic plan, to produce physical inspections that  are reliable, replicable, and reasonable, REAC is to look for patterns and  trends in inspection results, such as inconsistencies between inspectors,  regional and area differences, and patterns in different inspection  criteria. In addition, the strategic plan calls for REAC to assess and  improve the quality of contract inspectors. However, if REAC is unable to  meet its management targets for CQA reviews, it may not be able to  consistently produce high-quality inspections because it is not providing  routine opportunities for contract inspectors to receive coaching from  quality assurance inspectors, which could include addressing deficiencies  that the contract inspectors did not initially identify and record. In addition,  if QCIs are not conducted shortly after the original inspections, REAC  may not be able to verify the quality of the inspection because the  condition of the property could change over time. REAC’s inability to meet  management targets for CQA reviews and QCIs could also affect its  ability to monitor patterns in inspection results because, for example, the  quality of QCI data would be less reliable due to the lapse in time. As a  result, REAC may not be using quality assurance inspector resources as  effectively as possible.

REAC Takes Administrative Actions against Contract Inspectors Who Do Not Meet REAC Requirements

REAC’s Inspector Administration division administers a variety of  administrative actions and disciplinary sanctions against contract  inspectors in response to complaints or CQA reviews and QCIs. Inspector  Administration officials said that they acknowledge and follow up on all  complaints received from property representatives and residents, among  others. Complaints about a contract inspector can relate to conduct,  inspection protocol violations, scheduling, and conflicts of interest, among  other issues. Inspector Administration uses the Code of Conduct, Uniform  Physical Condition Standards inspection protocol, and compilation bulletin  as standards for evaluating contract inspector conduct. In order of  increasing severity, Inspector Administration can issue a letter of warning,  issue a performance deficiency, suspend or decertify the inspector, or  refer the inspector to HUD’s OIG, among others. While Inspector  Administration can use professional judgement in adjudicating  complaints, some actions are automatic. For example, decertification is  automatic for inspectors with three or more performance deficiencies,  inspectors found to have engaged in egregious misconduct, or inspectors  who conduct fewer than 25 inspections annually. Inspector  Administration took more than 700 administrative enforcement actions  against contract inspectors from fiscal years 2013 through 2017 (see fig.  7).

As part of its effort to reform its contract inspector pool, REAC decertified  127 inspectors from fiscal years 2013 through 2017 due to inactivity,  conduct, or performance issues. For example, REAC decertified the  contract inspector who gave Eureka Gardens a passing inspection score  even though it was in poor physical condition. Two advocacy  organizations told us they noticed that REAC was decertifying more  inspectors than in the past, and one said that the quality of contract  inspectors had improved as a result.

In response to concerns from contract inspectors, Inspector  Administration is proposing changes to, among other things, provide  contract inspectors who are subject to potential enforcement actions with  more opportunities to present their perspective. For example, Inspector  Administration would allow contract inspectors to appeal performance  deficiencies earlier in the process. Other proposed changes would make  performance deficiencies based on outside standard ratings discretionary  instead of automatic and would remove a performance deficiency from a  contract inspector’s record after 25 consecutive inspections without a new  performance deficiency instead of 30. Inspector Administration officials  said the new rules would also adjust decertification sanction periods,  which specify the amount of time a decertified contact inspector must wait  before reapplying to REAC, to account more appropriately for the reason  the contact inspector left REAC (e.g., resignation, performance, or  conduct).

REAC’s Quality Control Group Has Not Yet Implemented Procedures for Inspector Oversight

REAC created the Quality Control group to standardize quality assurance  inspector reviews by conducting more frequent oversight and looking for  trends across all quality assurance inspectors, according to a Quality  Control official. This official said that one type of oversight involves a  quality control staff member conducting an identical inspection 1 day after  that of a quality assurance inspector to determine how well the inspector  recorded deficiencies. Inspections are then rated as either “acceptable” or  “unacceptable” based on whether the inspector followed established  protocols and observed and accurately recorded 90 percent or greater of  the existing deficiencies. According to the official, inspection reviews are  expected to be shared with quality assurance management and individual  supervisors to support quality assurance inspector development. This  official also told us Quality Control plans to conduct reviews of quality  assurance inspectors at least once a year, or more frequently as needed.

In November 2018, Quality Control developed a mission statement which  says that the primary goal of the group is to improve the consistency of  inspections. Also in November 2018, Quality Control developed  procedures for reviewing quality assurance inspectors, which include  processes for conducting field reviews of completed inspections, criteria  for acceptable inspections, and processes for providing feedback. An  official from Quality Control said that the group worked with other  divisions within REAC, such as PASS Quality Assurance and Research  and Development, to develop the procedures and criteria for evaluating  quality assurance inspectors. The official told us both its mission  statement and procedures have not been implemented, in part because  Quality Control staff have been repeatedly pulled onto other special  projects. The official told us that these documents have been approved by  REAC management and that Quality Control intends to implement the  procedures in 2019.

According to federal internal control standards, management should  implement control activities through policies. For example, the  standards call for documenting in policies each unit’s responsibility for an  operational process’s objectives and related risks. Without finalizing and  implementing its policies and procedures for reviewing quality assurance  inspectors, Quality Control may not be able to provide consistent reviews  of quality assurance inspectors, which could affect the quality of  inspections as well as the feedback and coaching quality assurance  inspectors provide to contract inspectors. Prioritizing the implementation  of Quality Control’s review procedures could help ensure that Quality  Control achieves its objectives and provides consistent reviews of quality  assurance inspectors.

Performance Standards for Quality Assurance Inspectors Do Not Fully Align With Job Duties

The standards REAC uses to measure quality assurance inspectors’  performance do not fully align with their job duties. Quality assurance  supervisors are primarily responsible for evaluating quality assurance  inspector performance using five performance elements, which REAC’s  performance appraisal system describes as follows:

Collaboration: Provide customer service communication both  verbally and in writing to internal and external HUD stakeholders,  customers, or anyone who comes in contact with quality assurance  services.

Individual training: Develop competencies and perform individual  training associated with job duties.

Personal investment: Improve processes, such as through special  projects or self-initiated projects that improve the quality assurance  division’s standard operating procedures, the Uniform Physical  Condition Standards inspection protocol, the compilation bulletin, or  others.

Risk management: Maximize scarce resources and be cost efficient  to the government in all aspects of job duties and assignment.

Meeting the need for quality affordable rental housing: Perform in  accordance with all protocols and standard operating procedures, and  complete CQA reviews and Uniform Physical Condition Standards  inspections.

REAC’s performance appraisal system includes descriptions of the  standards for each of the five performance elements, as well as  supporting behaviors. For example, to be rated fully successful for  “meeting the need for quality affordable rental housing,” quality assurance  inspectors should independently complete Uniform Physical Condition  Standards inspections with no more than two inspections being rejected  by REAC within the rating period. Based on the standards, quality  assurance inspectors are also expected to conduct CQA reviews and field  trainings for contract inspector candidates.

However, the performance appraisal system for quality assurance  inspectors does not include performance elements with competencies  that relate to all of their job duties. For example, the performance  appraisal system does not define expectations for performing CQA  reviews or QCIs. In addition, it does not include criteria for evaluating the  training, coaching, and mentoring that quality assurance inspectors are  expected to provide to contract inspectors. Quality assurance supervisors  can incorporate information from reviews of quality assurance inspectors  by Quality Control in their performance evaluations. However, REAC  officials told us that Quality Control does not evaluate inspectors based  on the performance elements and standards. Instead, Quality Control’s  reviews only evaluate an inspector’s performance as it relates to the QCI  being reviewed, such as following established protocols and observing  and accurately recording 90 percent or greater of the existing  deficiencies. In addition, Quality Control’s reviews do not include  evaluations of a quality assurance inspector’s performance for other key  job duties, such as training and mentoring contract inspectors.

According to key practices we have identified for effective performance  management, agencies should use competencies to define the skills and  supporting behaviors that individuals need to effectively contribute to  organizational results. REAC staff told us they do not know when the  performance elements and standards for quality assurance inspectors  were last revisited, and new job duties such as conducting QCIs have  been added that are not part of the performance elements. Better  alignment between the performance competencies and the job  responsibilities of quality assurance inspectors would help ensure that  inspectors are assessed on all their key duties—including training and  mentoring contract inspectors—which could improve the quality of  inspections and reviews.

HUD’s Key Rental Programs Rely on REAC Physical Inspection Scores as Part of Their Monitoring and Enforcement Processes

PIH and Multifamily Housing each have separate processes to monitor  the conditions of HUD-assisted properties, including physical conditions,  and take enforcement actions if properties are not decent, safe, sanitary,  and in good repair. PIH assesses the performance of PHAs on key  indicators through a federal regulatory process—the Public Housing  Assessment System. PIH also monitors PHAs through a Risk  Assessment Protocol, which incorporates qualitative data and determines  actions to address identified risks. The Risk Assessment Protocol is  intended to be a proactive approach to address risk at PHAs and use  resources efficiently. Separately, Multifamily Housing monitors properties  that score below 60 on the REAC physical inspection. To account for  properties scoring 60 or above on the REAC inspection, as well as to  monitor property characteristics other than physical conditions, Multifamily  Housing assesses properties through its risk rating system.

REAC Scores Factor into PIH’s Assessment of Public Housing Agencies’ Performance and Help Determine Actions to Address Deficiencies

Public Housing Assessment System Process

The Public Housing Assessment System uses the REAC physical  inspection score for each public housing development to determine the  physical performance of the PHA. The physical performance of PHAs is  one of four indicators within the Public Housing Assessment System,  which assesses the performance of PHAs and determines a performance  designation. The four indicators are (1) the physical condition of the  PHA’s housing developments, (2) the financial condition of the agency,  (3) the management operations of the agency, and (4) utilization of  property modernization and development funds (capital fund). REAC  inspection scores are adjusted to reflect the size of each housing  development, and their weighted average is the physical performance  indicator for a PHA. The physical indicator score, worth a maximum of  40 points (out of 100 points total) toward the overall Public Housing  Assessment System score, has the highest value of the four indicators.  To determine the financial, management, and capital fund indicators,  PHAs upload information electronically to REAC, and REAC’s data  systems generate a score for each indicator and overall. Figure 8 shows  the maximum value for each indicator and overall score.

Table 4 explains how the indicator and overall assessment scores lead to  a performance designation. PHAs are assessed and receive a  performance designation every 1 to 3 years, according to their size and  prior performance designation. PHAs with at least 250 units receive an  assessment annually. PHAs with fewer than 250 units receive an  assessment every 3 years if designated as a high performer, 2 years if  designated as a standard or substandard performer, and annually if  designated as a troubled or capital fund troubled performer. In years that  smaller PHAs do not receive an assessment, they must provide financial  data to REAC but do not receive a published assessment score or  designation.

Following REAC’s release of the performance designations, PHAs and  PIH each have a role in ensuring that physical deficiencies are corrected.  REAC is not responsible for ensuring that PHAs correct physical  deficiencies. According to federal regulations, PHAs must take certain  actions depending on their performance designation. PHAs designated as  troubled must enter into a recovery agreement with PIH to improve their  performance within 2 years. PHAs designated as standard or substandard performers must correct deficiencies identified in the  assessment within 90 days, or they may develop a plan to correct the  deficiency within a specified time frame. PIH officials told us they  monitor whether PHAs designated as standard or substandard  performers have developed a plan or if field offices are assisting the PHA.  PHAs designated as high performers are not required to correct  deficiencies. Table 5 shows the number of PHAs in each designation for  fiscal years 2013 through 2017, including some PHAs exempt from  receiving a performance designation (e.g., small PHA deregulation).

If PHAs do not correct deficiencies or improve their performance, PIH  officials told us they can initiate a series of actions. First, PIH field offices  are to remind PHAs of their obligation to provide housing that is decent,  safe, sanitary, and in good condition. If those conversations are not  effective, PIH can take administrative or enforcement actions. For  example, PIH can refer PHAs to the Departmental Enforcement Center,  which can exclude PHA leadership from participating in HUD programs.  However, we previously found that PIH refers PHAs to the Departmental  Enforcement Center infrequently, making 12 referrals in 2017 and 25  referrals in 2016. In rare instances, PIH also can place the PHA into  administrative receivership and take control of the PHA’s operations.  These actions also could be part of a recovery agreement for troubled  performer PHAs. PIH officials told us they initiate actions specified in the  recovery agreement for troubled performer PHAs that do not improve  their performance within 2 years.

PIH’s Risk Assessment of Public Housing Agencies Incorporates REAC Scores and Determines Actions to Address Physical and Other Risks

To inform its monitoring efforts, PIH uses the Risk Assessment Protocol  to assess PHAs in four risk categories: physical, governance, financial,  and management. PIH collects quantitative data from various HUD data  systems and qualitative data from a survey administered by PIH field  offices. The physical risk category uses a PHA’s Public Housing  Assessment System physical indicator score—which is determined using  the REAC inspection score—as one factor in determining physical risk.  PIH also assesses physical risk using the qualitative survey and location  of the PHA. Additionally, the performance designation from the Public  Housing Assessment System—which incorporates the REAC inspection  score—is included as part of assessing governance risk. The financial  and management categories do not incorporate the REAC physical  inspection score.

For each risk category, PIH assigns points and designates a risk level for  each PHA, as shown in figure 9. A higher number of points is associated  with higher risk. For example, PIH assigns 25 points to PHAs with a  physical indicator score of 25 or below and zero points to PHAs with a  physical indicator score of 28 or higher. After assigning points, PIH  designates a risk level for each risk category, as well as overall, based on  the average PHA score for each category and overall. These risk  designations are very high, high, moderate, and low. PHAs furthest from  and above the average score are designated as very high risk, and PHAs  closest to the average score are designated as low risk. PIH designates a  risk level to PHAs every quarter, although some information used to  determine the risk level is not updated every quarter. For example, the  qualitative survey is updated every other quarter.

PIH determines actions—called risk treatments—to address each risk  category based on a PHA’s risk level. PIH determines actions each  quarter for every PHA newly designated as very high or high risk, and it  determines actions every other quarter for all other very high, high, or  moderate risk PHAs. To address physical risks, field office staff may  provide training or technical assistance to PHAs. For example, field office  staff told us they provided technical assistance by explaining the physical  inspection standards and policies related to using operating funds to  make physical repairs. Risk treatments have a completion date, and PIH  field office staff are to monitor whether the treatment is effective. If the  risk treatments do not result in improvements, PIH officials told us they  can seek technical assistance from subject matter experts within PIH or  can elevate the risk treatment, among other actions. For example, PIH  can provide on-site assistance rather than remote assistance.

Multifamily Housing’s Process for Directing Property Owners to Correct Physical Deficiencies Is Based on REAC Scores

Multifamily Housing is required to direct property owners to correct  physical deficiencies based on the REAC inspection score. For  properties that score below 60 on the REAC physical inspection,  Multifamily Housing issues property owners a notice to take the following  actions: (1) provide a copy of the notice to residents; (2) survey 100  percent of the property to identify all physical deficiencies; (3) correct all  deficiencies identified during the survey and the REAC inspection; (4)  certify that they have corrected all deficiencies; and (5) submit a 100- percent survey of the property and certification of corrected deficiencies  to HUD. Property owners should complete these actions within 60 days  of receiving the notice but may request an extension if correcting the  deficiencies will take longer than 60 days. For example, Multifamily  Housing may issue extensions for notices received in winter months  because seasonal conditions may make certain repair work, such as  pouring concrete, more difficult to complete within 60 days.

Multifamily Housing schedules a follow-up inspection depending on  whether property owners submit a certification, as well as if the property  scores 30 or below on the inspection. For property owners who certify  that deficiencies have been corrected, Multifamily Housing schedules the  property’s next inspection to take place within 1 year after the date of the  last inspection. For property owners who do not submit the certification or  for properties that score 30 or below on the REAC inspection, Multifamily  Housing or the Departmental Enforcement Center schedules a follow-up  inspection as soon as possible. Multifamily Housing uses the REAC score  from that next inspection to determine whether the owner corrected  deficiencies.

After issuing a notice, Multifamily Housing can take various actions when  properties’ scores on the REAC inspection remain below 60, if owners do  not certify or correct physical deficiencies. Table 6 summarizes the  actions Multifamily Housing took in fiscal years 2016 and 2017. For  example, Multifamily Housing officials initially can place a flag in a data  system to indicate that an owner has not met requirements for properties  to be decent, safe, sanitary, and in good repair. This flag may prevent  the owner from further participation in HUD programs. Another action  Multifamily Housing officials can take is to change the property’s  management agent. Multifamily Housing officials told us this action has  been successful in improving the physical conditions of properties when  properties do not require significant repair work. Multifamily Housing also  can take more significant actions, such as terminating a rental assistance  contract or foreclosing on a loan and relocating tenants from these  properties.

In addition to taking these actions, REAC and Multifamily Housing refer  properties to the Departmental Enforcement Center when they score  below a determined threshold. Upon publishing the inspection score,  REAC refers properties that score 30 or below on a REAC inspection to  the Departmental Enforcement Center automatically. Multifamily  Housing officials told us they coordinate with relevant stakeholders to  discuss these properties. Multifamily Housing also can refer properties  electively to the Departmental Enforcement Center when they score  between 31 and 59 on the REAC inspection. Further, Multifamily Housing  can recommend specific actions for the Departmental Enforcement  Center to take regardless of a property’s inspection score. The  Departmental Enforcement Center can impose civil money penalties to  encourage compliance with HUD’s regulations or limit a property owner  from participating in HUD programs. Our analysis of referral data for  physical conditions from fiscal years 2012 through 2017 shows that for 12  referrals, the Departmental Enforcement Center imposed money  penalties through a settlement, and that no referrals resulted in a  suspension or debarment. However, according to our previous work on  the Departmental Enforcement Center, most referrals result from financial  reviews rather than physical inspections.

HUD’s Threshold for Issuing Notices for Property Owners Is Inconsistent with Requirements of Appropriations Legislation

The Office of Multifamily Housing’s current practice of issuing notices to  property owners when the REAC score is 59 or below is inconsistent with  the legal requirement. As previously discussed, for properties that score  59 or below on the REAC inspection, HUD issues notices for property  owners to certify that deficiencies have been identified and corrected  within 60 days. However, the 2017 and 2018 Consolidated Appropriations  Acts state that HUD must provide a notice to owners of properties that  score 60 or below on the REAC physical inspection.

Multifamily Housing officials told us that they believe language in the  appropriations acts is not clear regarding the threshold to issue notices to  property owners. Specifically, the appropriations acts state that HUD  should issue a notice for properties that score 60 or below, and also that  HUD may withdraw the notice to property owners when they successfully  appeal their inspection score to 60 or above. Additionally, Multifamily  Housing officials told us that HUD’s long-standing and current practice is  to issue notices when a property receives a score of 59 or below.  According to our analysis of inspection data, 30 properties received a  score of 60 from May 2017 to December 2017 and would not have  received a notice to correct physical deficiencies under HUD’s  approach. Unless Congress changes the threshold identified in  appropriations acts from 60 to 59 or HUD changes its practice to issue  notices to properties that score 60 or below, HUD’s actions will continue  to be inconsistent with the legal requirement.

Other Multifamily Housing Monitoring Processes Also Incorporate REAC Scores

Multifamily Housing also uses other processes to monitor the physical  condition of properties, including properties that score 60 or above on the  REAC inspection. These other processes incorporate additional aspects  of properties beyond physical conditions.

Multifamily Housing’s risk rating system uses information on properties’  physical, financial, and management conditions to assign one of three risk  ratings—troubled, potentially troubled, or not troubled—to each  property. The REAC inspection score, along with actions taken to  correct deficiencies, is one factor that determines the risk rating.  Specifically, properties that score between 30 and 70 on the REAC  inspection are rated as potentially troubled if the property owner is  addressing physical deficiencies. Properties that score between 30 and  59 are rated as troubled if the owner has not certified that deficiencies  have been corrected. Properties that score below 30 are rated as troubled  and maintain that rating until the next REAC inspection.

Multifamily Housing field office and headquarters staff told us they provide  greater monitoring and oversight to properties rated as troubled and  potentially troubled. Properties rated as troubled are required to develop  an action plan to identify and document steps to address their risk,  including physical risk. For example, a plan to improve the physical  condition of a property may direct property owners to rehabilitate units.  Properties rated as potentially troubled may develop such a plan but are  not required to do so. Additionally, Multifamily Housing headquarters staff  conduct a monthly call with field office staff to discuss properties rated as  troubled. Multifamily Housing officials told us they review properties every  3 to 12 months based on the risk rating and can take actions if properties  are not correcting issues. If property owners do not correct issues  outlined in their plan, Multifamily Housing can take many of the actions  listed previously, such as changing the management agent.

Multifamily Housing can also monitor properties through other processes,  such as site visits or other reviews. According to Multifamily Housing  officials, field office staff conduct site visits of properties if they receive  multiple complaints from tenants or notice a particular concern, or if the  property receives media attention. Multifamily Housing also can conduct  site visits of properties through a Management and Occupancy Review.  Multifamily Housing officials told us they are moving toward a risk-based  approach, using results from prior reviews and a property’s risk rating to  determine how often to conduct these Management and Occupancy  Reviews. However, Multifamily Housing officials told us that budget and  staffing constraints continue to limit the number of reviews completed  annually, with less than half of project-based rental assistance properties  reviewed in 2017.

To complete Management and Occupancy Reviews, HUD staff or  contractors review documentation to monitor whether properties are  adhering to requirements for receiving HUD funding and to target  potential issues. This review gathers information on seven factors of  property management, including management of a property’s physical  condition. As part of gathering information, HUD staff or contract  administrators interview the property owner or agent and may visit a  sample of housing units to verify that deficiencies identified in the REAC  inspection have been corrected. The Management and Occupancy  Review specifies—in a summary report for owners and agents— corrective actions to take within targeted completion dates, not to exceed  30 days, based on the documentation review and on-site visit. Properties  that perform poorly on the review also must provide proof of taking these  actions. If properties do not provide proof of taking these corrective  actions, Multifamily Housing can take some of the previously listed  actions, such as changing the agent of a property.

REAC’s inspection process annually identifies properties that are in poor  physical condition and contain life threatening health and safety issues.  With over 2 million moderate- and low-income households living in public  housing or multifamily properties assisted or insured by HUD, it is  imperative that these properties are decent, safe, sanitary, and in good  repair. Our review of REAC found areas for improvement in its inspection  process:

Review of inspection process. A comprehensive review of the  inspection process could help REAC identify risks and ensure it is  meeting the goal specified in its strategic plan that inspections be  reliable, replicable, and reasonable.

Sampling errors in inspection scores. If REAC were to resume  reporting on sampling errors and develop a process to address  properties that fall below certain cutoff scores when the sampling error  is taken into account, it would have the information it needs to identify  properties that may require more frequent inspections or enforcement  actions.

Sampling methodology documentation. Comprehensive and  organized documentation of the sampling methodology could help  REAC preserve the institutional knowledge of important features of its  inspection process, particularly when key staff leave the agency.

Timing of housing inspections. Improvements in REAC’s on-time  performance of multifamily property inspections could provide HUD  with more timely information on the physical condition of these  properties and the information it needs to take any enforcement  actions. Further, by developing mechanisms to track its progress on  meeting the schedule for inspections and improving its collection of  data on why inspections are delayed, REAC could better determine  what factors are contributing to delays in conducting inspections.

Staffing inspections. A formal evaluation plan could help REAC  determine if its pilot program for staffing inspections in difficult  geographic areas is a success or whether changes are needed before  moving from a pilot to a permanent process.

Implementation of open recommendations. Taking timely actions  on internal-review recommendations could help HUD to improve  REAC’s inspection process and the safety of HUD-assisted  properties.

We also found areas for improvement in REAC’s processes for selecting,  training, and overseeing contract and quality assurance inspectors:  Inspector candidates’ qualifications. A more robust process for  verifying contract inspectors’ qualifications could reduce the number  of candidates with insufficient experience who participate in REAC’s  training program, which could help REAC to expend fewer resources  on training candidates who are unlikely to become successful  inspectors.

Contract inspector training. Evaluating the effectiveness of its  training program for contract inspectors could help REAC better  assess the quality of the program and plan for future training.

Quality assurance inspector training. By developing and  documenting training for quality assurance inspectors that  encompasses all of their job responsibilities, REAC can better ensure  that inspectors have the skills required to oversee contract inspectors.

Continuing education requirements. Continuing education  requirements for contract and quality assurance inspectors could help  REAC ensure that inspectors are up-to-date on REAC policies and  industry standards.

Targets for reviews of contract inspectors. Improving its ability to  meet management targets for CQA reviews and QCIs could help  REAC better ensure that contract inspectors are receiving the  feedback needed to improve their performance, thereby improving the  quality of inspections.

Formal policies for Quality Control group. By implementing  policies and procedures for the Quality Control group, REAC can help  ensure that the group achieves its objective of providing consistent  reviews of quality assurance inspectors that will enable these  inspectors to improve their oversight roles.

Performance standards for quality assurance inspectors.

Reviewing and updating REAC’s performance standards for quality  assurance inspectors so that they align with their job duties can help  REAC ensure that staff understand how their duties are prioritized  within REAC’s mission and improve the quality of performance  reviews.

Finally, Multifamily Housing’s current practice of taking actions against  property owners when the REAC score is 59 or below is inconsistent with  the legal requirement to take action when the score is 60 or below. While  in practice this affects very few properties, without either Congress  changing the threshold identified in appropriations acts from 60 to 59 or  HUD changing its practice to issue notices to properties that score 60 or  below, HUD’s actions will continue to be inconsistent with the legal  requirement.

We are making the following 14 recommendations to HUD:  The Deputy Assistant Secretary for the Real Estate Assessment Center  should conduct a comprehensive review of the physical inspection  process. (Recommendation 1)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should resume calculating the sampling error associated with the physical  inspection score for each property, identify what changes may be needed  for HUD to use sampling error results, and consider those results when  determining whether more frequent inspections or enforcement actions  are needed. (Recommendation 2)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should develop comprehensive and organized documentation of REAC’s  sampling methodology and develop a process to ensure that  documentation is maintained going forward. (Recommendation 3)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should track on a routine basis whether REAC is conducting inspections  of multifamily housing properties in accordance with federal guidelines for  scheduling and coordinate with the Deputy Assistant Secretary for  Multifamily Housing to minimize the number of properties that can cancel  or reschedule their physical inspections. (Recommendation 4)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should design and implement an evaluation plan to assess the  effectiveness of the Indefinite Delivery/Indefinite Quantity pilot in ensuring  timely and quality inspections for properties in hard-to-staff geographic  areas. (Recommendation 5)

The Deputy Assistant Secretary for Multifamily Housing and the Deputy  Assistant Secretary for the Real Estate Assessment Center should  expedite implementation of the recommendations from the Rapid  Response and Resolution Team. (Recommendation 6)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should follow through on REAC’s plan to create a process to verify  candidate qualifications for contract inspectors—for example, by calling  references and requesting documentation from candidates that supports  their completion of 250 residential or commercial inspections. The plan  should also consider whether certain types of inspections—such as  Federal Emergency Management Agency inspections and U.S. Army  Office of Housing inspections—satisfy REAC’s requirements.  (Recommendation 7)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should develop a process to evaluate the effectiveness of REAC’s  training program—for example, by reviewing the results of tests or  soliciting participant feedback. (Recommendation 8)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should revise training for quality assurance inspectors to better reflect  their job duties. Revised training should be documented, include  expanded subject matter training, and address skills that may not be  included in training for contract inspectors—for example, instructing  contract inspector candidate trainings and coaching and providing  feedback. (Recommendation 9)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should develop continuing education requirements for contract and quality  assurance inspectors. (Recommendation 10)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should develop and implement a plan for meeting REAC’s management  targets for the timeliness and frequency of CQA reviews and QCIs. The  plan should include consideration of resources of and demands on quality  assurance inspectors, including the effect of natural disasters and other  special assignments. (Recommendation 11)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should ensure that Quality Control’s policies and procedures for  overseeing quality assurance inspectors are implemented.  (Recommendation 12)

The Deputy Assistant Secretary for the Real Estate Assessment Center  should review quality assurance inspector performance standards and  revise them to better reflect the skills and supporting behaviors that  quality assurance inspectors need to effectively contribute to REAC’s  mission. (Recommendation 13)

The Deputy Assistant Secretary for Multifamily Housing should report to  Congress on why the agency has not complied with the 2017 and 2018  Consolidated Appropriations Acts requirement to issue notices to  properties when the REAC score is 60 or below, including seeking any  statutory flexibilities or exceptions believed appropriate.  (Recommendation 14)

We provided a draft of this report to HUD for review and comment. In  written comments, reproduced in appendix V, HUD agreed with 11  recommendations, partially agreed with 2, and neither agreed nor  disagreed with 1.

In its written comments, HUD noted that it largely agreed with the findings  and has been examining how it can develop, pilot, and evaluate an  alternate approach to its inspection model that will address the issues  raised in our report. Consistent with our report, HUD recognized that after  20 years, its physical inspection process has become susceptible to  manipulation. HUD said it plans to pilot a new physical inspection process  in one of HUD’s administrative regions later this year.  HUD stated that  given its limited resources, it will be unable to simultaneously develop the  new process and implement all of the recommendations to its current  process.  We maintain that implementing the recommendations will help  REAC to ensure that properties are decent, safe, sanitary, and in good  repair.

HUD agreed with 11 recommendations and provided specific information  about planned steps to implement them. For example, for our first  recommendation on conducting a comprehensive review of REAC’s  physical inspection process, HUD noted in its written comments that it  plans to develop new standards, protocols, scoring approaches, and  software to be validated through a demonstration. In addition, if resources  are available, HUD plans to contract with an external vendor to assess  the accuracy and effectiveness of the new inspection process and the  statistical validity of scoring. For our eighth and ninth recommendations  on evaluating and revising training for contract and quality assurance  inspectors, HUD noted that it would evaluate its internal training program  for contract inspectors as it pilots its new inspection process and compare  the results with its evaluation of an outsourced training approach. In  addition, HUD noted that it would identify the subject matter expertise  needed for quality assurance inspectors and provide training to address  any skills gaps among these inspectors.

HUD partially agreed with our fourth and sixth recommendations and  noted some considerations for addressing them. HUD partially agreed  with our fourth recommendation regarding tracking its progress on  conducting inspections of multifamily properties in accordance with  federal guidelines, but did not identify the reason for its partial agreement.  In written comments, HUD described actions it plans to take that we  consider consistent with the intent of the recommendation. We maintain  that this recommendation should be implemented to achieve benefits,  including better understanding of the factors that contribute to inspection  delays. HUD also partially agreed with our sixth recommendation  regarding expedited implementation of recommendations from the Rapid  Response and Resolution Team. In written comments, HUD noted that in  order to balance resources invested in the current approach with those  needed to design future operations, it would consider whether the  remaining recommendations from the Rapid Response and Resolution  Team fit with the new inspection model that it plans to pilot. Whether in  the current inspection model or a future one, we maintain that expediting  implementation of the recommendations from the Rapid Response and  Resolution Team will support that team’s intention to address conditions  at troubled multifamily properties.

HUD neither agreed nor disagreed with our second recommendation to  resume calculating the sampling error associated with the physical  inspection for each property, identify the changes that may be needed for  HUD to use sampling error results, and consider those results when  determining whether more frequent inspections or enforcement actions  are needed. In response to this recommendation, HUD noted in its written  comments that it is examining resource implications, regulations and  policies that would need to be changed, and the viability and  effectiveness of making the changes included in our recommendations.  We maintain that implementing this recommendation would improve  REAC’s inspection process by identifying properties that may require  more frequent inspections or enforcement actions.

We are sending copies of this report to the appropriate congressional  committees and the Secretary of Housing and Urban Development. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or GarciaDiazD@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 key contributions to this  report are listed in appendix VI.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) the Department of Housing and Urban  Development’s (HUD) Real Estate Assessment Center’s (REAC) process  for identifying physical deficiencies; (2) REAC’s processes for selecting,  training, and developing contract and quality assurance inspectors; (3)  REAC’s processes for monitoring contract and quality assurance  inspectors; and (4) HUD’s monitoring and enforcement processes for  addressing physical deficiencies and how REAC’s information is used to  support these processes.

To address the first objective, we reviewed regulations and policies and  procedures related to REAC’s physical inspection process. Specifically,  we reviewed the final notice on REAC’s physical inspection scores and  the 2017 update to REAC’s compilation bulletin, which is the guidance  document for inspectors conducting physical inspections. We also  reviewed REAC’s user guide, which explains how REAC’s inspection  software and handheld data collection devices are used to conduct the  inspection and record deficiencies. To describe the quality assurance  processes for physical inspections, we reviewed REAC’s quality  assurance standard operating procedures, which provide instructions to  REAC’s quality assurance inspectors on how they are to conduct various  monitoring activities over contract inspectors to assess the quality of  inspections. We also reviewed REAC’s standard operating procedures for  post-inspection reviews.

As part of our assessment of the physical inspection process, we  reviewed the statistical methodology used by REAC to determine the  sample size for dwelling units and buildings. We reviewed REAC’s  documentation describing the sample-size calculations for units and  buildings and interviewed a REAC statistician to obtain information on the  statistical approach and assumptions used in the sample size  calculations. With this information, we were able to conduct our own  calculations on the sample-size and compare our results to REAC’s.

To report on the number of physical inspections conducted from fiscal  years 2013 through 2017, as well as other data on inspections over this  period, we accessed REAC’s Record and Process Inspection Data  database. This database contains information related to physical  inspections, such as the types and locations of properties inspected,  dates of inspection, and inspection scores. To assess the reliability of the  database, we first identified the various tables in the database that held  the relevant data we needed for our analysis. We also identified the  common identifier in each of these tables to construct records of  inspections with the relevant data. We met with REAC’s staff to confirm  that our selection of the tables and our construction of records was  correct. We then performed our analysis and developed various  descriptive statistics, such as the number of inspections per year by  property type from fiscal years 2013 through 2017, the number of  multifamily properties that failed their REAC inspection (scored below 60)  for fiscal years 2013 through 2017, the percentage of multifamily property  inspections that occurred on time given their inspection score, and  various inspection score ranges by state. We compared our statistics on  the number of inspections per year with comparable statistics developed  by REAC. In cases where we had differences, we obtained explanations  from REAC for these differences and revised our analysis where  appropriate. Based on our overall assessment of the REAC data we  used, we found them to be sufficiently reliable for analyzing the number  and timing of inspections and trends in scoring.

To obtain the views of various stakeholders on the inspection process, we  held discussion groups with contract inspectors and REAC’s quality  assurance inspectors and supervisors. Each discussion group had  between 6 and 13 participants and was facilitated by a GAO staff  member. We covered a number of topics in these discussion groups,  including the inspection and quality assurance processes. We held one  discussion group with contract inspectors, three with REAC quality  assurance inspectors, and one with REAC quality assurance supervisors:

Contract inspectors. For the discussion group with the contract  inspectors, we invited all of the contract inspectors who were  attending a conference at REAC’s headquarters in Washington, D.C.  Thirteen contract inspectors attended the discussion group.

Quality assurance inspectors. For the discussion groups with the  quality assurance inspectors, we reached out to all quality assurance  staff and coordinated with REAC to arrange specific meeting times to  maximize the number of participants. We held two separate  discussion groups with experienced inspectors. The first of these  groups had 11 participants, and the second group had 6. We also  held a separate discussion group with 11 newly hired quality  assurance inspectors.

Quality assurance supervisors. For the last discussion group, we  reached out to all quality assurance supervisors and met with 6 of  them.

We recorded all of the discussion groups to help transcribe the  conversations. In order to analyze the discussion group transcripts, we  identified phrases that represented key themes across the groups. One  GAO analyst reviewed one of the transcripts to identify any additional  phrases we should add to our analysis. Once we arrived at our final set of  key themes, one GAO analyst reviewed all of the transcripts and matched  responses in the transcripts to the key themes. A second GAO analyst  then checked the work to determine if he agreed with the coding of the  first analyst. If there were any disagreements on the coding, the two  analysts met to reach consensus on the appropriate coding.

Finally, to obtain the perspectives of property owners on REAC’s  inspection process, we met with four organizations representing  multifamily or public housing property owners. These organizations were  the Council for Large Public Housing Authorities, the National Affordable  Housing Management Association, the National Leased Housing  Association, and the Public Housing Authorities Directors Association.  Also, to understand how private home inspection associations developed  their inspection processes, we interviewed staff from the American  Society of Home Inspectors and the International Association of Certified  Home Inspectors.

To address the second and third objectives, we reviewed REAC’s policies  and procedures for selecting, training, developing, and monitoring  contract and quality assurance inspectors. We reviewed the contract  inspector candidate assessment questionnaire and construction analyst  job announcement, which describe the requirements to become a  contract and quality assurance inspector, respectively. We also reviewed  documents describing the online (Phase Ia), classroom (Phase Ib), and  field (Phase II) training courses. We also reviewed an assessment that  Deloitte, a management consultant firm, conducted of REAC’s training,  quality assurance, and inspector oversight processes. We compared  REAC’s training processes for inspectors with key attributes of effective  training and development programs. In our discussion groups with  contract and quality assurance inspectors, we also asked their views on  REAC’s selection, training, and monitoring processes. In addition, we  interviewed REAC management officials to discuss their processes for  the selection, training, monitoring, and oversight of contract and quality  assurance inspectors. We spoke with staff from the American Society of  Home Inspectors and the International Association of Certified Home  Inspectors to understand how their selection and training requirements for  inspectors who are members of home inspection associations compared  with REAC’s.

To examine REAC’s processes for monitoring contract inspector  performance, we reviewed REAC’s quality assurance standard operating  procedures, REAC’s strategic plan, and various tools REAC has  developed to assess how contract and quality assurance inspectors  perform relative to their peers. We obtained data on collaborative quality  assurance reviews for fiscal years 2013 through 2017 and data on quality  control inspections for January 2017 through June 2018. We analyzed the  data to determine, for example, how often contract inspectors were  conducting inspections in accordance with REAC’s Uniform Physical  Conditions Standards protocol and its quality assurance standard  operating procedures, and how often REAC was meeting its goals for  timeliness and frequency of reviews. We assessed the reliability of the  data by interviewing knowledgeable officials and conducting manual  testing on relevant data fields for obvious errors. Based on these steps,  we found the data to be sufficiently reliable for the purposes of our  analyses.

To examine REAC’s processes for monitoring and overseeing quality  assurance inspector performance, we reviewed the performance  standards and performance elements REAC uses to evaluate quality  assurance inspectors. We interviewed staff from REAC’s Quality Control  department, which conducts inspection reviews on quality assurance  inspectors. We compared REAC’s performance management processes  to key practices we have identified for effective performance  management. We also compared REAC’s policies for oversight and  monitoring of quality assurance inspectors to criteria in Standards for  Internal Control in the Federal Government.

To address the fourth objective, we reviewed documentation related to  monitoring and enforcement processes for HUD’s Office of Multifamily  Housing (Multifamily Housing), Office of Public and Indian Housing (PIH),  and the Departmental Enforcement Center. For example, we reviewed  relevant protocols and guidance documents on PIH’s and Multifamily  Housing’s processes to address physical risk, among other risks. We also  reviewed the relevant legal authorities in the 2014 through 2018  Consolidated Appropriations Acts and federal regulations for these HUD  program offices to take enforcement actions for properties with physical  deficiencies. We interviewed officials from Multifamily Housing, PIH, and  the Departmental Enforcement Center on their processes to monitor the  physical condition of properties and take enforcement actions. We further  selected two Multifamily Housing and four PIH field offices throughout the  United States to understand actions they take to monitor properties and  ensure that physical deficiencies are corrected. We developed a two- stage process to select field offices with a higher percentage of  inspections with scores 70 and below. We first selected HUD regions  based on our score criteria and then selected specific field offices within  those regions using similar score criteria. Because we selected a  nonprobability sample of field offices, the information we obtained cannot  be generalized more broadly to all field offices. However, the information  provides important context and insight into how the enforcement process  for physical deficiencies works across the country. In addition, we  obtained data on performance designations for public housing agencies  within PIH, actions taken by Multifamily Housing for properties scoring  below 60 on the REAC inspection, and actions taken by the Departmental  Enforcement Center for Multifamily Housing properties. We assessed the  reliability of the data by reviewing relevant HUD guidance and obtaining  written responses from agency officials on how the data were collected,  maintained, analyzed, and presented. Based on these steps, we found  the data to be sufficiently reliable for the purposes of our analyses.  Finally, we reviewed prior reports from GAO and from the HUD Office of  Inspector General that discussed efforts to monitor the physical condition  of properties, among other conditions.

We conducted this performance audit from July 2017 to March 2019 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.

Appendix II: Number of Multifamily Housing Inspections and Percentage of Inspections in Selected Score Ranges, Fiscal Years 2013– 2017

The Real Estate Assessment Center (REAC) conducted 44,486  inspections of Office of Multifamily Housing (Multifamily Housing)  properties from fiscal years 2013 through 2017, according to our analysis  of REAC’s inspection data. Properties received a score from 0 to 100,  with a score below 60 considered as failing. Table 7 shows the  percentage of inspections conducted in each state across three score  ranges. States varied in the percentage of inspections that fell within the  score range considered failing (0 to 59), from a low of 1 percent to a high  of 10 percent. REAC inspects properties with lower scores more  frequently than properties with higher scores. For example, properties  that scored below 80 would have been inspected annually over this  period, while properties that scored 90 or above would have been  inspected every 3 years.

Appendix III: Number of Public Housing Inspections and Percentage and Number of Inspections in Selected Score Ranges, Fiscal Years 2013–2017

The Real Estate Assessment Center (REAC) conducted 15,156  inspections of public housing properties from fiscal years 2013 through  2017, according to our analysis of REAC’s inspection data. Properties  received a score from 0 to 100, with a score below 60 considered as  failing. Table 8 shows the percentage of inspections conducted in states  or U.S. territories across three score ranges. States varied in the  percentage of inspections that fell within the score range considered  failing (scores 0 to 59), from a low of 1 percent to a high of 34 percent.  REAC generally inspects properties with lower scores more frequently  than properties with higher scores.

According to our analysis, REAC conducted fewer than 100 inspections of  public housing properties in 18 states or territories. Table 9 shows the  number of inspections conducted within three score ranges for these 18  states or territories.

Appendix IV: Recommendations to the Real Estate Assessment Center from the Rapid Response and Resolution Team

The Rapid Response and Resolution Team was created by the  Department of Housing and Urban Development (HUD) in May 2016 to  address troubled multifamily properties by  improving HUD’s internal processes for assessing properties and  analyzing risk so that properties do not become troubled;  improving HUD’s processes for inspecting properties so that troubled  ones are identified earlier and more reliably and communicating the  results to stakeholders; and  improving HUD’s processes for enforcing corrective actions and  resolving troubled properties and working with owners so that HUD  resources are used only on safe and healthy housing.

The team consisted of staff from the Real Estate Assessment Center  (REAC) and other units within HUD, including the Office of Multifamily  Housing (Multifamily Housing). In January 2017, the team presented 31  recommendations, 8 of which were specific to REAC. As of December  2018, REAC had not yet implemented any of these recommendations.  REAC had reached concurrence with Multifamily Housing on 3 of these  recommendations and asked for Multifamily Housing’s consideration of  the funding and rulemaking requirements for the remaining 5  recommendations. The 8 recommendations that were specific to REAC  are as follows:  1.  Implement a risk-based exigent health and safety abatement  verification policy.  2.  Inspect properties that have a REAC physical inspection score of less  than 60 after a 3-day notice.  3.  Increase the scoring weights of units and reexamine point deduction  caps.  4.  Expand photo capability in the inspection process to level 1 and level  2 deficiencies and a panoramic photo of the property.  5.  Inspect carbon monoxide detectors in the inspection process.  6.  Develop health and safety abatement requirements, including  focusing on water ponding and missing lead-based paint disclosure  forms and inspection reports.  7.  Take enforcement action to protect tenants before the 45-day appeal  period is over for properties that score under 30 points and that have  exigent health and safety deficiencies.  8.  Require electronic exigent health and safety certifications and  abatements within 24 hours of the inspection.

Appendix V: Comments from the Department of Housing and Urban Development

Appendix VI: GAO Contact and Staff Acknowledgments

In addition to the contact named above, Andy Pauline (Assistant  Director), José R. Peña (Analyst in Charge), Carl Barden, Chloe Brown,  Hannah Dodd, Juan Garcia, Jeff Harner, Emily Hutz, Jill Lacey, Jerry  Sandau, Jessica Sandler, Jennifer Schwartz, and Jena Sinkfield made  key contributions to this report.

HUD provides financial assistance to ensure that affordable rental housing is available for more than 2 million low- and moderate-income households.

HUD’s Real Estate Assessment Center contracts with inspectors to ensure that the properties are clean, safe, and in good repair. However, there are concerns that the physical inspection process is not identifying troubled properties effectively. For example, the Center does not always meet its schedule for inspecting properties, which means problems could go unaddressed longer than they should.

We made 14 recommendations to improve the inspection process, among other things.