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HUD APPS Flagging Process May be Flawed, Says OIG Audit


What happens when a property fails a REAC Inspection? “A lot” is the short but not particularly helpful answer. Let’s expand on that. When a REAC score comes in under 60, the remediation process requires the owner/agent to take appropriate steps to improve living conditions for residents of the property.

But what if an owner/agent attempts to take these steps, HUD still isn’t satisfied, and the property fails again? According to HUD Notice 2016-15, properties that fail two REAC inspections in a row or receive a score under 30 must be flagged in the HUD Active Partner Participation System (APPS). When a property, and its controlling participants, are flagged, future participation in HUD programs can be put in jeopardy.

HUD uses three tiers of flags in APPS to categorize risks associated with previous participation:

  • Tier 1. HUD considers flags to be an elevated risk.
  • Tier 2. HUD considers flags to be an ongoing risk.
  • Tier 3. HUD considers flags a single risk; flags are removed when the cause of the flag is resolved.

On February 14, 2023, the Office of the Inspector General for HUD (OIG) released the findings of an audit of HUD’s system of applying flags to poor-performing properties. The report found that HUD did not always enter the required flags.

“HUD did not enter the required flags into APPS for successive failing REAC physical inspection scores in 13 of 21 properties reviewed,” the report says. “In 6 of the 13 instances, the property had more than one missing flag for the below‐60 REAC score infraction.”

The Process of Flagging Failed Properties is Flagged for Review

While the review included a small sample of properties, the OIG Audit appears to say that the greatest concern is that the process of entering flags is manual. A manual system, the audit report says, is central to the issues in the audit. Moreover, HUD did not have a quality control program to ensure that the account executives manually entered the flags into APPS each time successive below‐60 REAC scores were entered into iREMS.

The audit report suggests that because of the lapses in flagging properties for enforcement —and in prohibiting offenders from future participation — could result in substandard living conditions. “Not having sufficient information to assess its controlling participants could potentially impact the health and safety of residents at multifamily properties,” the report says.

While the Office of Multifamily Housing did not provide any immediate response to the audit, it’s likely that this audit report will result in increased scrutiny of the process of applying flags after failing REAC Inspections.

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