HUD Could Strengthen Controls Over Employee Benefits Expensed at Public Housing Agencies

We audited the U.S. Department of Housing and Urban Development’s (HUD) controls over employee benefits expensed at public housing agencies (PHA) due to a previous external review of the Waterbury, CT, Housing Authority, which determined that employee benefits expensed were unsustainable. Our audit objective was to determine whether HUD ensured that employee benefits expensed at PHAs were reasonable.Analysis of PHA data showed that generally, PHAs expensed employee benefit contributions reasonably; however, HUD could strengthen controls in this area. Federal regulations indicate that employee benefit contributions are allowable provided that the benefits are reasonable and are required by law. Further, the average percentage of employee benefits to total compensation for State and local government employees nationally was 31 percent and the PHA data we reviewed showed that employee benefits were generally within the national average. However, 69 of 3,755 PHAs expensed at least $100,000 in employee benefit contributions over 40 percent of total compensation, which may be unreasonable. In addition, PHAs did not always enter accurate financial data regarding employee benefits into the Financial Assessment Subsystem – Public Housing (FASS-PH) system. This condition occurred because HUD did not have specific controls over employee benefit contributions and generally did not review those costs as they were controlled mostly by State laws governing pension plans and negotiated labor union agreements. In addition, PHA financial data received by HUD were at a combined level, which prevented it from easily reviewing benefit costs without having the transaction-level detail required for a meaningful review. As a result, HUD did not have assurance that employee benefit contributions expensed at 69 PHAs were reasonable or that the data entered into FASS-PH were accurate.We recommend that HUD (1) evaluate the risk that employee benefit contributions expensed at PHAs may be unreasonable and (2) develop and implement additional guidance to ensure that PHAs enter accurate employee benefit data into FASS-PH.