Audit objective and criteria This is the second of two Australian National Audit Office (ANAO) audits of the Scheme. The first audit report, ANAO Report No.8 2015–16, Administration of the National Rental Affordability Scheme, was presented to the Parliament in November 2015 and focused on the assessment of applications for allocations and management of reserved allocations. The ANAO concluded that the administration of the application and assessment process and management of reserved allocations for NRAS had not been effective. The report also highlighted the need for effective planning and sound administration if Government programs are to be successfully implemented and are to achieve their objectives and expected outcomes. The objective of this audit was to examine the effectiveness of the Department of Social Services’ administration of NRAS allocations; processing of market rent valuations, statements of compliance and incentive payments; and the supporting business systems and processes. To form a conclusion against the audit objective, the ANAO’s high level audit criterion was whether the department had implemented processes for managing the allocation of NRAS incentives and a risk-based approach for processing the payment of incentives to approved participants in accordance with the National Rental Affordability Scheme Regulations 2008 (the Regulations). The audit has principally focused on the processing of incentive claims and payments made for the 2013–14 and 2014–15 NRAS years. Conclusion The effectiveness of the Department’s administration of NRAS allocations and incentive claims has been mixed. The regulatory framework governing the administration of the National Rental Affordability Scheme could be reviewed to clarify the operation of aspects of the Regulations. To more effectively manage Scheme risks, the department should develop a risk management framework and a targeted risk-based compliance program, informed by a comprehensive assessment of Scheme risks. The supporting information technology system could also be further developed to streamline approved participants’ submission of required information and to aid in the better identification of potentially non-compliant or higher-risk incentive claims that require review prior to payment. The department has processed allocation requests, market rent valuations and incentive claims in accordance with the requirements of the Regulations, based on the information submitted by approved participants. However, there is no consistently applied method for verifying the reliability of the information provided.