GAO Recommends Improvements to REAC – March 2019

            At the end of March 2019, the Government Accountability Office (GAO) issued a report titled, “REAL ESTATE ASSESSMENT CENTER – HUD Should Improve Physical Inspection Process and Oversight of Inspectors.”

            The 2017 Consolidated Appropriations Act, Joint Explanatory Statement, included a requirement that the GAO conduct a review of REAC’s policies and processes; this study has been issued in response to that requirement.

            The 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 qualify assurance inspectors.

            GAO has made 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.

What GAO Found

            The primary overall finding is that the REAC standardized procedures to identify physical deficiencies at HUD multifamily and public housing properties has a number of weaknesses. For example, REAC has not conducted a comprehensive review of its inspection processes since 2001. Also, REAC does not track its progress toward meeting its inspection schedule for certain properties.

            REAC uses contractors to inspect properties; these contract inspectors are trained and supervised 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.
• Training: REAC lacks formal mechanisms to assess the effectiveness of its training program for contract and quality assurance inspectors, and there are not continuing education requirements for inspectors.
• Monitoring: REAC has not met management targets for the number and timeliness of its inspection oversight reviews of contract inspectors. REAC has not met its target of conducting three quality assurance reviews of poor-performing contractors per quarter. 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.

Background

            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 one to three years, using a risk-based schedule. REAC developed a standardized protocol to inspect properties, referred to as the Uniform Physical Condition Standards (UPCS). REAC’s data system automatically generates an overall inspection score for the property from 0 to 100 based on the information an inspector records.

            REAC primarily uses contractors – who are trained and certified in REAC’s UPCS protocol – to conduct inspections of multifamily and public housing properties.

            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.

REAC Roles & Responsibilities

            REAC is situated within the Public & Indian Housing (PIH) branch of HUD. Several departments within REAC are involved in facilitating the physical inspection process:

• Physical Assessment Subsystem (PASS): 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. The PASS Inspector Administration division monitors the performance of inspectors.
• Research & Development: This division produces data analysis and statistical reports on REAC’s information products.
• PIH: This office helps low-income families by providing rental assistance through three programs. The GAO review focused on physical inspections of the public housing program.
• 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 contract with private property owners to rent housing units to eligible low-income tenants for an income-based rent.
• Department Enforcement Center: This division is located within HUD’s Office of General Counsel and works to ensure that program funds are used according to federal regulations.

The 91-page report identified a number of REAC weaknesses.

1. REAC’s inspection process has some weaknesses that may hinder its ability to identify physical deficiencies;
2. REAC has not conducted a comprehensive review of its inspection process since 2001;
3. REAC may not be identifying all properties in need of more frequent inspections or enforcement actions;
4. REAC lacks comprehensive or organized documentation of sampling methodology;
5. REAC does not always meet its schedule for inspecting multifamily properties or track progress toward meeting scheduling requirements;
6. While REAC is piloting a process for hard-to-staff inspections, it has no plans to evaluate the success of the pilot project;
7. HUD has made only limited progress in implementing recommendations from an internal HUD review of REAC;
8. REAC’s procedures for selecting, training, and developing inspectors have weaknesses;
9. REAC sets but does not verify qualification requirements for contract inspector candidates;
10. Training for contract inspectors is not consistent with key attributes of effective training and development programs;
11. Quality assurance inspector training requirements may not cover all job duties and are not documented;
12. REAC does not require continuing education for contract and quality assurance inspectors;
13. REAC has not met management targets for reviews of contract inspectors;
14. REAC’s Quality Control Group has not yet implemented procedures for inspector oversight;
15. Performance standards for Quality Assurance Inspectors do not fully align with job duties; and
16. HUD’s threshold for issuing notices for property owners in inconsistent with requirements of Congressional legislation.

Conclusions

The GAO study found areas for improvement in the REAC inspection process and made the following 14 recommendations to HUD:

1. Conduct a comprehensive review of the physical inspection process;
2. Calculate sampling errors associated with the physical inspection score for each property;
3. Develop comprehensive and organized documentation of REAC’s sampling methodology;
4. Track on a routine basis whether REAC is conducting inspections of multifamily housing properties in accordance with federal guidelines for scheduling;
5. Design and implement an evaluation plan to assess the effectiveness of the Indefinite Delivery/Indefinite Quality pilot program to ensure timely and quality inspections for properties in hard-to-staff geographic areas;
6. Expedite implementation of the recommendation from the Rapid Response and Resolution Team;
7. Follow through on REAC’s plan to create a process to verify candidate qualifications for contract inspectors;
8. Develop a process to evaluate the effectiveness of REAC’s training program;
9. Revise training for quality assurance inspectors to better reflect their job duties;
10. Develop continuing education requirements for contract and quality assurance inspectors;
11. Develop and implement a plan for meeting REAC’s management targets for the timeliness and frequency of quality control reviews;
12. Ensure that quality control’s policies and procedures for overseeing quality assurance inspectors are implemented;
13. Review quality assurance inspector performance standards and revise them to better reflect the skills and supporting behaviors that such inspectors need; and
14. Report to Congress on why the Agency has not complied with the 2017 and 2018 legislative requirements to issue notices to properties when the REAC score is 60 or below.

As with most GAO reports, actual implementation of the recommendations may take some time. However, as with the recent REAC change to a 14-day inspection notification, owners and managers of HUD multifamily properties should be proactive in managing properties in a way that will not create a negative outcome when (not if) these recommendations ultimately go into effect.