Report: Top Management Challenges Facing HUD in FY 2025

These include grants management, disaster recovery, and fraud prevention.

HUD faces a series of management and performance challenges for fiscal year 2025, according to a recent report from HUD’s Office of Inspector General (OIG). This annual assessment provides an independent perspective on HUD’s key operational hurdles, highlighting both ongoing issues and recent improvements.

Notably, the report reflects HUD’s improvements in human capital management, leading the OIG to remove this as a concern for the current cycle. According to the OIG, HUD has shown sustained progress in human capital management over the past two years, notably through the Office of the Chief Human Capital Officer’s (OCHCO) closing OIG priority open recommendations. OCHCO has helped HUD reduce the time to hire, increase staffing levels, modernize human capital policies, and develop systems to assess activity such as retention, attrition, and employee feedback. OIG says HUD program offices also reported consistently to OIG that OCHCO’s assistance continues improving.

Critical challenges remain across several core areas, however, including health and safety standards, affordable housing access, grants management, disaster recovery, and fraud prevention. HUD’s success in tackling these issues will be crucial for its ability to deliver on its mission of increasing access to affordable housing, strengthening communities through economic development, fighting housing discrimination, and tackling homelessness issues.

Health and Safety

HUD is responsible for overseeing its assisted housing to ensure that properties are “decent, safe, sanitary, and in good repair and that its programs and projects comply with environmental regulations.” And the Code of Federal Regulations further requires that all sites proposed for use in HUD programs must be free of hazardous materials, contamination, toxic chemicals and gasses, and radioactive substances that could affect the health and safety of occupants.

OIG has identified two areas in which HUD faces difficulties—the risk of lead hazard in HUD-assisted housing and the identification and remediation of health and safety deficiencies through its inspection processes.

Lead-based paint hazards. While public housing agencies (PHAs) are responsible for implementing methods to achieve lead-safe housing, HUD is responsible for monitoring compliance with and enforcing its lead-safety requirements. Although, in the past year, HUD provided guidance for its field office clarifying HUD’s role and responsibilities for ensuring PHAs comply with the Lead Safe Housing Rule (LSHR) and other lead-based paint (LBP) guidance and requirements, OIG says there’s a gap that has resulted in inconsistent monitoring of PHAs’ handling of lead hazards.

OIG audits of large PHAs found that many lacked proper procedures to manage lead-based paint and in some instances, misinterpreted HUD’s requirements. OIG previously recommended that the Office of Public and Indian Housing (PIH) determine whether PHAs are maintaining and implementing plans to manage lead-based paint in their developments.

OIG has also issued a priority open recommendation for HUD to align its elevated blood lead level (EBLL) value to CDC’s blood lead reference value (BLRV) for children under the age of 6. As of August 2022, HUD was using the EBLL value of 5 micrograms of lead per deciliter of blood (μg/dL), despite CDC’s lowering the BLRV to 3.5 μg/dL in October 2021. Based on the CDC's lowered BLRV being found to be practicable, in September 2023, HUD issued a Federal Register notice on its intention to lower the EBLL value to the CDC’s BLRV.

Health and safety deficiencies. With respect to inspection processes, two OIG reports, one on the Boston Housing Authority and one on the Columbus Metropolitan Housing Authority, found that the PHAs did not always ensure that HCV units met HUD’s housing quality standards and did not stop payments to owners who failed to correct unit deficiencies. The audits noted that both PHAs lacked sufficient oversight of how thoroughly the PHAs’ or contractors’ inspectors performed their work and did not have adequate controls to ensure that appropriate actions were taken to address unit deficiencies.

Furthermore, a HUD OIG audit found inadequacies in HUD’s Real Estate Assessment Center (REAC)’s inspection process. The audit found that REAC lacked adequate policies, procedures, and controls to ensure that public housing units were inspected in the required time frames and that HUD was delayed in inspecting properties it designated as high priority. And while the National Standards for the Physical Inspection of Real Estate (NSPIRE) regulations on inspection timing have been completed, the IT system was not programmed to alert program office staff when a property needs a future inspection. Another audit found that HUD needed to develop and implement a nationwide protocol for its field offices to more consistently oversee PHA self-inspections.

Increasing Access to Affordable Housing

HUD’s Housing Choice Voucher (HCV) Program subsidizes housing for approximately 2.3 million families, including the elderly and persons with disabilities. Although HUD is developing and implementing new ways to increase private landlord participation in the program, the report says HUD must continue to work with PHAs to expand access to affordable housing. The national success rate for new voucher recipients has decreased from 65 percent in 2018 to 55 percent in 2022, underscoring the need to find more ways to increase landlord participation and leasing potential.

Also, the report finds that HUD needs to improve its oversight of PHA voucher programs and ensure that funds are being used to help the maximum number of families. PHAs are tasked with assisting the maximum number of eligible families in obtaining decent, safe, and sanitary rental units at the correct subsidy cost. PHAs report data to HUD about their performance through the Section 8 Management Assessment Program (SEMAP), which uses PHA self-evaluation data to identify struggling HCV programs that need enhanced oversight and technical assistance.

However, OIG says the information reported in SEMAP may not accurately represent the performance of PHAs’ HCV programs, and HUD’s process for verifying the information PHAs use for SEMAP reporting does not effectively assist HUD in evaluating and identifying PHAs’ HCV programs that may need improvement. To better equip HUD to monitor the HCV program, OIG recommends that HUD enhance or develop a new performance measurement process that would help it identify PHAs with underperforming programs and provide additional training and guidance to help its field staff evaluate and validate the information in SEMAP.

Grants Management

HUD grants support a varied range of activities, such as housing justice, rental assistance, fair housing investigations and outreach, homelessness assistance, community and economic development, affordable housing development, and disaster recovery and mitigation. HUD is responsible for administering its grants in an effective and timely manner, including ensuring oversight of the subrecipients and contractors that carry out HUD programs.

The report noted that there are weaknesses in HUD’s monitoring and reporting systems and this creates challenges for HUD program offices and staff tasked with determining whether the grant funds are achieving their desired results. The report contends that HUD needs more reliable and complete financial and performance information and systems, enhanced subrecipients monitoring, and timeliness in grant fund spending and grant program execution. 

Disaster Recovery Oversight

HUD is responsible for administering billions in disaster recovery and mitigation grants each year and ensuring that the funding is used effectively and in a timely manner. These funds are distributed to a wide variety of public grantees, which often redistribute funds to subgrantees, subcontractors, and other subrecipients to help communities recover from or mitigate disaster damage.

HUD OIG has recommended that HUD continue to seek permanent authorization of HUD’s Community Development Block Grant Disaster Recovery and Mitigation (CDBG-DR) programs. CDBG-DR grant programs are not enacted through regulatory requirements in the Code of Federal Regulations. Instead, Congress provides disaster relief funds in supplemental appropriations, and HUD uses the existing CDBG program as an initial program framework.

For each appropriation, however, HUD must issue one or more Federal Register notices with additional requirements, waivers, and allocations for its grantees. And as HUD allocates and amends requirements for each disaster through Federal Register notices, grantees historically have had to develop multiple action plans or amendments to implement plans for disaster recovery. These steps are completed during a time of great uncertainty, given that personnel and infrastructure may have been impacted following a disaster.

This becomes even more complex and difficult for grantees in areas prone to disasters, as they are managing multiple grants for different disasters, which can have different rules. These issues can create delays lasting months and even years. Additionally, oversight of this program is complicated by different rules applying to different grantees. Although HUD has made progress toward providing more consistent guidance to its disaster grantees within the limitations HUD believes it has the authority to take, OIG says permanent authorization of HUD’s disaster recovery program would streamline and inject greater fiscal responsibility into the CBDG-DR program.

Also, as disaster funding grows, HUD’s capacity to monitor and oversee the funding must keep up. The report points out that with a large transfer of disaster recovery funding, often far in excess of what a grantee or subrecipients typically receive, disaster recovery programs are at a heightened risk of fraud. And OIG reports commonly find that grantees lack an understanding of the differences between monitoring reviews and day-to-day operations, have inadequate monitoring procedures, or simply do not perform monitoring.

Fraud Risk and Improper Payments

Fraud against HUD diminishes HUD’s ability to meet the critical housing needs of its communities. OIG says HUD is missing opportunities to mitigate fraud risks and detect improper and unknown payments. Within the Office of the Chief Financial Officer (OCFO), HUD’s Chief Risk Officer (CRO) has developed a multiyear, phased fraud risk management strategy that includes education, outreach, assistance, fraud risk mitigation tools, data analytics, and training for HUD program offices and grantees. According to the report, the CRO is working through the phased approach and has focused OCFO’s initial efforts on education and promoting fraud awareness across HUD.

The report notes that HUD’s Chief Risk Officer must work to mature HUD’s fraud risk management program. OIG says HUD program offices must work with the CRO to complete program-level fraud risk assessments and implement response plans. HUD’s CRO is close to completing a fraud risk exposure analysis and an agencywide plan; however, most program offices have not completed program-specific fraud risk assessments. Without improvements to its program, HUD may miss opportunities to identify and eliminate fraud vulnerabilities, leaving its funds and reputation at risk.