oversight

FHFA Complied with Applicable Improper Payment Requirements for Fiscal Year 2018

Published by the Federal Housing Finance Agency, Office of Inspector General on 2019-05-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

         Federal Housing Finance Agency
             Office of Inspector General




FHFA Complied with Applicable
Improper Payment Requirements
     for Fiscal Year 2018




 Audit Report • AUD-2019-007 • May 16, 2019
               Executive Summary
               The Improper Payments Information Act of 2002, as amended by the
               Improper Payments Elimination and Recovery Act of 2010 and the Improper
               Payments Elimination and Recovery Improvement Act of 2012 (collectively,
               IPIA), requires federal agencies to periodically review, estimate, and report
               programs and activities that may be susceptible to significant improper
AUD-2019-007   payments. IPIA, among other things, directs federal Inspectors General to
               determine annually whether their respective agencies are in compliance with
May 16, 2019   the statute and to submit a report to the head of the agency, Congressional
               oversight committees, the Comptroller General of the United States, and the
               controller of the Office of Management and Budget (OMB).

               The Federal Housing Finance Agency (FHFA or Agency), through its Office
               of General Counsel (OGC), maintains that most requirements of the IPIA are
               not applicable to the Agency because those requirements apply only to
               payments made with federal funds and FHFA does not finance its operations
               with federal funds. That said, FHFA asserts that it has put into place internal
               controls to achieve the intent of IPIA. We conducted a performance audit to
               assess the Agency’s compliance with the IPIA for fiscal year 2018. We found
               that FHFA complied with the applicable provisions of the IPIA.

               This report was prepared by Heath Wolfe, Director of Audit Operations, with
               the assistance of Bob Taylor, Senior Advisor. We appreciate the cooperation
               of FHFA staff, as well as the assistance of all those who contributed to the
               preparation of this report.

               This report has been distributed to FHFA, Congress, OMB, the Government
               Accountability Office (GAO), and others and will be posted on our website,
               www.fhfaoig.gov.



               Marla A. Freedman, Deputy Inspector General for Audits /s/
TABLE OF CONTENTS ................................................................
EXECUTIVE SUMMARY .............................................................................................................2

ABBREVIATIONS .........................................................................................................................4

BACKGROUND .............................................................................................................................5

FACTS AND ANALYSIS...............................................................................................................7
      Not All IPIA Requirements Are Applicable to FHFA .............................................................7

CONCLUSION ................................................................................................................................9

FHFA COMMENTS AND OIG RESPONSE .................................................................................9

OBJECTIVE, SCOPE, AND METHODOLOGY .........................................................................10

APPENDIX: FHFA MANAGEMENT RESPONSE ....................................................................12

ADDITIONAL INFORMATION AND COPIES .........................................................................13




                                           OIG • AUD-2019-007 • May 16, 2019                                                              3
ABBREVIATIONS .......................................................................

AFR                   Agency Financial Report

FHFA or Agency        Federal Housing Finance Agency

GAO                   Government Accountability Office

IPIA                  Improper Payments Information Act of 2002, as amended by the
                      Improper Payments Elimination and Recovery Act of 2010 and the
                      Improper Payments Elimination and Recovery Improvement Act of
                      2012

OGC                   Federal Housing Finance Agency Office of General Counsel

OIG                   Federal Housing Finance Agency Office of Inspector General

OMB                   Office of Management and Budget

OMB M-18-20           Office of Management and Budget Memorandum M-18-20,
                      Transmittal of Appendix C to OMB Circular A-123, Requirements for
                      Payment Integrity Improvement

PAR                   Performance and Accountability Report

U.S.C.                United States Code




                          OIG • AUD-2019-007 • May 16, 2019                            4
BACKGROUND ..........................................................................

Because federal agencies regularly make payments to program beneficiaries, grantees,
vendors, and contractors, or on behalf of program beneficiaries, there is a possibility that
some of these payments may be “improper” in one or more respects. To provide estimates and
report improper payments by federal agencies, Congress enacted IPIA in 2002, 1 which it
amended in 2010 and 2013. IPIA requires federal agencies to periodically review, determine,
estimate, and report programs and activities that may be susceptible to significant improper
payments. 2 According to IPIA, the term “payment” means:

          [A]ny transfer or commitment for future transfer of federal funds such as cash,
          securities, loans, loan guarantees, and insurance subsidies to any non-federal
          person or entity or a federal employee, that is made by a federal agency, a federal
          contractor, a federal grantee, or a governmental or other organization
          administering a federal program or activity. 3

To provide further guidance to federal agencies on the improper payments covered by IPIA,
OMB issued a memorandum in June 2018 that defines “improper payment” as:

          [A]ny payment that should not have been made or that was made in an incorrect
          amount under statutory, contractual, administrative, or other legally applicable
          requirements. Incorrect amounts are overpayments or underpayments that are
          made to eligible recipients (including inappropriate denials of payment or service,
          any payment that does not account for credit for applicable discounts, [footnote
          omitted] payments that are for an incorrect amount, and duplicate payments).
          An improper payment also includes any payment that was made to an ineligible
          recipient or for an ineligible good or service, or payments for goods or services
          not received (except for such payments authorized by law). In addition, when an
          agency’s review is unable to discern whether a payment was proper as a result of
          insufficient or lack of documentation, this payment must also be considered an
          improper payment. 4



1
    Public Law No. 107-300, 31 U.S.C. § 3321 note.
2
    Public Law No. 111-204, 31 U.S.C. § 3321 note.
3
    Public Law No. 112-248, 31 U.S.C. § 3321 note.
4
  OMB M-18-20, Transmittal of Appendix C to OMB Circular No. A-123, Requirements for Payment Integrity
Improvement (June 26, 2018) (online at www.whitehouse.gov/wp-content/uploads/2018/06/M-18-20.pdf)
[hereinafter OMB M-18-20].



                                    OIG • AUD-2019-007 • May 16, 2019                                    5
IPIA directs federal agencies to put into place internal controls designed to eliminate payment
errors, waste, fraud, and abuse, including reducing and recapturing erroneous payments.
OMB M-18-20 establishes steps for agencies to follow to identify those operations subject to
IPIA, and to design and implement appropriate internal controls to reduce the risk of improper
payments:

           1. Review all programs and activities and identify those that are susceptible to
              significant improper payments;

           2. Obtain a statistically valid estimate of the annual amount of improper payments
              in programs and activities identified in Step 1;

           3. Implement a plan sufficient to prevent or reduce improper payments; and

           4. Report annually on improper payments in the agency financial report (AFR) or
              the performance and accountability report (PAR). 5

To determine an agency’s compliance with IPIA, IPIA and OMB M-18-20 require each
agency Inspector General to review their agency’s AFR or PAR (and any accompanying
information) for the most recent fiscal year. Inspectors General are to complete their annual
compliance reviews by May 15th of the following year and report their findings. 6 ,7 If an
Inspector General finds that an agency is not in compliance with IPIA, the agency is required
to submit a plan to Congress describing the actions it will take to come into compliance. 8
OMB M-18-20 provides detailed information on agency compliance planning and related
efforts to become compliant.

FHFA issued its fiscal year 2018 PAR on November 15, 2018. Pursuant to IPIA, we
conducted this performance audit.




5
 OMB M-18-20, App. C. A PAR provides both financial and performance information that enables the
President, Congress, and the public to assess the performance of an agency relative to its mission and to
demonstrate accountability. An AFR provides similar information, but a performance section is not included.
See OMB, Circular A-136, Financial Reporting Requirements, at 11-13 (Sept. 18, 2014).
6
    OMB M-18-20, App. C, supra note 1, at Part IV § A(2).
7
 In consideration of the recent partial Government shutdown, OMB extended the deadline for the Inspectors
General compliance reviews from May 15, 2019, to June 3, 2019.
8
    IPERA § 3(c)(1)(A), see 31 U.S.C. § 3321 note.



                                     OIG • AUD-2019-007 • May 16, 2019                                        6
FACTS AND ANALYSIS ...............................................................

Not All IPIA Requirements Are Applicable to FHFA

In its 2018 PAR, FHFA makes no representations that it is covered by IPIA. Since 2012,
FHFA’s OGC has advised our office that it has concluded that various subsections of IPIA are
only applicable to payments made with federal funds, and that these subsections do not apply
to FHFA because it is an independent regulatory agency that does not seek appropriations for
its operations. Consequently, OGC reasons that payments made by the Agency, such as
payments to vendors, are not transfers of federal funds. 9

Figure 1 below lists the requirements in IPIA that an Inspector General is to review to
determine an agency’s compliance with IPIA, and FHFA’s determination of the requirements’
applicability to its operations.

FIGURE 1. REQUIREMENTS FOR IPIA COMPLIANCE AND FHFA’S DETERMINATION OF APPLICABILITY
                         TO ITS OPERATIONS - FISCAL YEAR 2018

                    IPIA Compliance Requirement                FHFA Determination of Applicability
       The agency has published an annual AFR or PAR for    FHFA determined that this requirement
       the most recent fiscal year and posted that report   applies to the Agency; FHFA published
       and any accompanying materials required under        its 2018 PAR.
       guidance of OMB on the agency website.
       The agency has conducted a program-specific risk     FHFA determined that this requirement
       assessment for each program or activity that         is not applicable to the Agency.
       conforms with IPIA (31 U.S.C. § 3321 note) (if
       required).
       The agency has published improper payments           FHFA determined that this requirement
       estimates for programs and activities identified     is not applicable to the Agency.
       as susceptible to significant improper payments
       under its risk assessment (if required).
       The agency has published programmatic corrective     FHFA determined that this requirement
       action plans in its PAR or AFR (if required).        is not applicable to the Agency.
       The agency has published, and is meeting, improper   FHFA determined that this requirement
       payments reduction targets for each program          is not applicable to the Agency.
       assessed to be at risk and estimated for improper
       payments (if required and applicable).
       The agency has reported a gross improper payment     FHFA determined that this requirement
       rate of less than 10 percent for each program and    is not applicable to the Agency.
       activity for which an estimate was obtained and
       published in its AFR or PAR.


9
    See 12 U.S.C. § 4516(f).



                                 OIG • AUD-2019-007 • May 16, 2019                                   7
OIG’s Office of Counsel reviewed FHFA’s legal memorandum supporting its determinations
of applicability and concluded that FHFA’s analysis was reasonable.

Notwithstanding the applicability of IPIA’s compliance requirements, FHFA advises in its
PAR:

           FHFA, in the spirit of compliance and as part of its sound internal control
           structure, has established controls to detect and prevent improper vendor
           payments. … FHFA has not identified any programs or activities susceptible
           to significant improper payments that meet IPIA’s thresholds. 10

To assess this representation by FHFA, we reviewed the following FHFA procedures and
guidance implemented for fiscal year 2018 to mitigate the risks of fraud, misuse, and payment
delinquency:

      •    Invoice and payment procedures;

      •    Purchase charge card procedures;

      •    Accrual and deobligation procedures; and

      •    Micro-purchase procedures and supplemental purchase cardholder guidance.

We noted no weaknesses in the design of these procedures and guidance. Furthermore, GAO
is charged with performing the audit of FHFA’s annual financial statements. 11 As part of its
audit, GAO audits FHFA’s internal control over financial reporting. In its report Financial
Audit: Federal Housing Finance Agency’s Fiscal Years 2018 and 2017 Financial Statements,
GAO opined that FHFA maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2018, based on relevant criteria. GAO did not
communicate any deficiencies with the Agency’s invoice and payment process controls to
FHFA.




10
 See FHFA, Fiscal Year 2018 Performance and Accountability Report (Nov. 15, 2018) (online at
www.fhfa.gov/AboutUs/Reports/Pages/Performance-and-Accountability-Report-2018.aspx).
11
     12 U.S.C. § 4516(h).



                                  OIG • AUD-2019-007 • May 16, 2019                             8
CONCLUSION ............................................................................

We conclude that FHFA complied with the IPIA compliance requirement applicable to the
Agency – publication of its PAR. Therefore, we determined that FHFA complied with IPIA.
As to the other IPIA compliance requirements for Inspector General review that FHFA opined
are not applicable to its operations, we determined that its analysis was reasonable.


FHFA COMMENTS AND OIG RESPONSE .....................................

OIG provided FHFA an opportunity to respond to a draft report of this audit. In its
management response, which is included as an appendix to this report, FHFA acknowledged
our conclusion that it complied with the applicable provisions of the IPIA.




                             OIG • AUD-2019-007 • May 16, 2019                               9
OBJECTIVE, SCOPE, AND METHODOLOGY .................................

Our audit objective was to determine FHFA’s compliance with IPIA. The scope of the audit
covered the period October 1, 2017, through September 30, 2018.

To accomplish the audit, we:

   •   Reviewed OIG’s prior IPIA audit documentation and audit report (AUD-2018-009,
       dated April 26, 2018);

   •   Reviewed IPIA, OMB M-15-02, and OMB M-18-20 regarding requirements and
       guidance that apply to FHFA and OIG;

   •   Determined whether there has been any change in FHFA’s assessment of the
       applicability of IPIA to the Agency, and obtained a review by OIG’s Office of
       Counsel of that assessment;

   •   Determined whether FHFA published its PAR, and accompanying materials for fiscal
       year 2018, and posted that report, as well as any accompanying materials required by
       IPIA, on the Agency’s website;

   •   Determined whether FHFA was required to conduct program-specific risk assessments
       for each program or activity under 31 U.S.C. 3321 and OMB M-18-20;

   •   Interviewed applicable FHFA officials/staff to obtain any additional background
       information that may be required, such as improper payments assessments, related
       correspondence, and/or results of procedures performed, including any legal opinions
       received and decisions taken;

   •   Obtained and reviewed the Agency’s invoice and payments procedures, purchase
       charge card procedures, accrual and deobligation procedures, micro-purchase
       procedures and supplemental purchase cardholder guidance, and internal control
       self-assessments for fiscal year 2018; and

   •   Reviewed GAO’s report on its audit of FHFA’s financial statements for fiscal years
       2018 and 2017, and inquired of FHFA staff about deficiencies in internal control over
       financial reporting that GAO communicated to FHFA during the audit. The purpose of
       our inquiries was to determine whether any of the deficiencies communicated related
       to the design and effectiveness of FHFA’s invoice and payment process controls.

We conducted this performance audit between December 2018 and May 2019 in accordance
with generally accepted government auditing standards. Those standards require that we plan


                               OIG • AUD-2019-007 • May 16, 2019                               10
and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis
for our findings and conclusions based on our audit objective. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit
objective.




                               OIG • AUD-2019-007 • May 16, 2019                                 11
APPENDIX: FHFA MANAGEMENT RESPONSE .............................




                    OIG • AUD-2019-007 • May 16, 2019         12
ADDITIONAL INFORMATION AND COPIES .................................


For additional copies of this report:

   •   Call: 202-730-0880

   •   Fax: 202-318-0239

   •   Visit: www.fhfaoig.gov



To report potential fraud, waste, abuse, mismanagement, or any other kind of criminal or
noncriminal misconduct relative to FHFA’s programs or operations:

   •   Call: 1-800-793-7724

   •   Fax: 202-318-0358

   •   Visit: www.fhfaoig.gov/ReportFraud

   •   Write:

                FHFA Office of Inspector General
                Attn: Office of Investigations – Hotline
                400 Seventh Street SW
                Washington, DC 20219




                                OIG • AUD-2019-007 • May 16, 2019                          13