oversight

HUD Management: Major Challenges and Program Risks

Published by the Government Accountability Office on 1999-03-23.

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

                         United States General Accounting Office

GAO                      Testimony
                         Before the Subcommittee on Housing and Transportation,
                         Senate Committee on Banking, Housing, and Urban
                         Affairs, U.S. Senate


For Release
on Delivery
Expected at
                         HUD MANAGEMENT
9:30 a.m. EST
Tuesday
March 23, 1999
                         Major Challenges and
                         Program Risks
                         Statement of Judy A. England-Joseph, Director
                         Housing and Community Development Issues
                         Resources, Community, and Economic
                         Development Division




GAO/T-RCED/AIMD-99-126
    Mr. Chairman and Members of the Subcommittee:

    We are here today to discuss the results of our work regarding the major
    management challenges facing the Department of Housing and Urban
    Development (HUD).1 For many years, we and others (e.g., HUD’s Inspector
    General, external auditors) have reported significant management
    problems at HUD. These problems are the results of serious, long-standing
    departmentwide deficiencies in four management areas—internal
    controls, information and financial management systems, organizational
    structure, and staffing. In 1994, we designated HUD programs as a high-risk
    area because of these management deficiencies, and in 1995 and 1997,2 we
    reported on the deficiencies and HUD’s progress in resolving them. Taken
    together, these deficiencies place the integrity and accountability of HUD’s
    programs at high risk. These deficiencies can affect HUD’s management of
    significant financial commitments, obligations, and exposure. Resolving
    them is particularly critical for HUD because its housing and community
    development programs rely extensively on the integrity of thousands of
    diverse individuals and entities.

    Our statement today is primarily based on our January 1999 report on
    HUD’s major management challenges and program risks. It discusses
    (1) corrective actions that HUD has taken or initiated on its major
    management challenges, (2) major management challenges that remain
    and limit HUD’s effectiveness in carrying out its mission, and (3) further
    actions that are needed to resolve these challenges.

    In summary, we found the following:

•   HUD is making significant changes and has made credible progress in
    overhauling its operations to correct its management deficiencies. Among
    other things, it has improved its financial reporting and developed risk
    assessments for its programs, developed and deployed components for its
    information and financial management systems, consolidated and
    centralized many of its operations, and reassigned and begun to retrain
    many of its staff. A major contributor to this progress is HUD’s June 1997
    2020 Management Reform Plan, a set of proposals intended to, among
    other things, correct the management deficiencies that we and others
    identified. However, it should be recognized that HUD’s problems were

    1
     Major Management Challenges and Program Risks: Department of Housing and Urban Development
    (GAO/OCG-99-8, Jan. 1999).
    2
    High-Risk Series: Department of Housing and Urban Development (GAO/HR-95-11, Feb. 1995) and
    High-Risk Series: Department of Housing and Urban Development (GAO/HR-97-12, Feb. 1997).



    Page 1                                                            GAO/T-RCED/AIMD-99-126
                 years in the making and will take time and much effort to correct. Current
                 HUD management has placed high priority on removing HUD programs from
                 the high-risk designation, but it will take continued and sustained efforts
                 before meaningful and lasting results can be achieved.
             •   While major reforms are under way, our recent work indicates that
                 internal control weaknesses and problems with information and financial
                 management systems persist. For example, material internal control
                 weaknesses persist in the Section 8 subsidy payment process, which
                 provides $18 billion in rental assistance, and HUD has not adequately
                 monitored programs and functions, such as contractors’ management of
                 the Department’s real estate assets. Recently, we reported that HUD is
                 likely to continue to spend millions of dollars, miss milestones, and still
                 not meet its objective of developing and fully deploying an integrated
                 financial management system because it has not yet finalized detailed
                 project plans or cost and schedule estimates for this effort.3 Furthermore,
                 recent reforms to address the Department’s organizational and staffing
                 problems are in the early stages of implementation, and it is too soon to
                 tell whether the reforms will resolve the major deficiencies that we and
                 others have identified. Therefore, pending the achievement of substantial
                 results, the integrity and accountability of HUD’s programs remain at high
                 risk in our opinion. We reached this conclusion using the same
                 methodologies and criteria as our 1995 and 1997 reports.
             •   To resolve these management deficiencies, the Department needs to
                 ensure that the actions being taken eliminate the remaining major internal
                 control weaknesses; strengthen its management and oversight of efforts to
                 integrate its information and financial management systems and correct
                 these systems’ weaknesses; ensure that the field offices have enough staff
                 to carry out the work assigned, including the monitoring of programs and
                 activities and the assessment of outcomes; and ensure that all staff have
                 the skills needed to perform their functions.


                 Directly or indirectly, HUD affects millions of Americans as it carries out
Background       the federal government’s missions, policies, and programs for housing and
                 community development. These missions range from making housing
                 affordable by insuring loans for multifamily rental housing properties and
                 providing rental assistance for about 4.5 million low-income residents, to
                 helping revitalize over 4,000 localities through community development
                 programs, to encouraging homeownership by providing mortgage
                 insurance to about 7 million homeowners who might not have been able to

                 3
                  HUD Information Systems: Improved Management Practices Needed to Control Integration Cost and
                 Schedule (GAO/AIMD-99-25, Dec. 18, 1998).



                 Page 2                                                             GAO/T-RCED/AIMD-99-126
                     qualify for nonfederally supported loans. HUD is also one of the nation’s
                     largest financial institutions, with significant commitments, obligations,
                     and exposure. As of September 30, 1997, HUD was responsible for
                     managing about $454 billion in insured mortgages and $531 billion in
                     guarantees of mortgage-backed securities.4 For fiscal year 1999, it has
                     $24.3 billion in budget authority.

                     HUD initiated a number of reforms and downsizing efforts in the 1990s. In
                     February 1993, then Secretary Cisneros initiated a “reinvention” process
                     under which task forces were established to review and refocus HUD’s
                     mission and identify improvements in the delivery of program services.
                     HUD also took measures in response to the National Performance Review’s
                     September 1993 report, which recommended that HUD eliminate its
                     regional offices, realign and consolidate its field office structure, and
                     reduce its field workforce. Following a July 1994 report by the National
                     Academy of Public Administration that criticized HUD’s performance and
                     capabilities, Secretary Cisneros issued a reinvention proposal in
                     December 1994 that called for major reforms, including a consolidation
                     and streamlining of HUD’s programs coupled with a reduction in staff.
                     Building upon the earlier reinvention efforts, Secretary Cuomo initiated
                     the 2020 planning process in early 1997 to address, among other things,
                     HUD’s downsizing goals and management deficiencies.



                     HUD  has taken important steps to strengthen its internal controls and
Corrective Actions   financial reporting, improve its information and financial management
That HUD Has Taken   systems, consolidate its operations, and appropriately deploy and train its
or Initiated         staff. Guiding many of these efforts has been its 2020 Management Reform
                     Plan, introduced in June 1997. While it is still too soon to evaluate the
                     effectiveness of some of these efforts, we believe that the Department has
                     made credible progress in correcting many of the management
                     deficiencies that we and others have identified.

                     HUD  has improved its financial reporting and has strengthened its internal
                     controls by conducting risk assessments for some of its programs . HUD’s
                     fiscal year 1996 and 1997 financial statements were audited by HUD’s
                     Inspector General and HUD’s Federal Housing Administration’s (FHA) fiscal
                     year 1997 and 1998 financial statements were audited by KPMG Peat


                     4
                     These mortgage-backed securities are guaranteed by HUD’s Government National Mortgage
                     Association and backed by pools of mortgage loans insured or guaranteed by HUD’s Federal Housing
                     Administration, the Department of Agriculture’s Rural Housing Service, or the Department of Veterans
                     Affairs.



                     Page 3                                                                 GAO/T-RCED/AIMD-99-126
Marwick LLP, a public accounting firm.5 For fiscal years 1996 and 1997,
HUD’s Inspector General was able to provide qualified opinions on HUD’s
financial statements, compared with no opinion on the reliability of its
financial statements for fiscal year 1995. In addition, as the public
accounting firm KPMG Peat Marwick LLP reported this month, FHA presented
its fiscal year 1998 financial statements in accordance with federal
accounting standards and received an unqualified opinion on those
statements. In 1998, HUD’s Office of Chief Financial Officer (CFO)
established a risk management division, which has continued efforts
initiated by the CFO to work with the Department’s program offices and
new nationwide centers to identify risks and develop action plans to
reduce them. As of September 30, 1998, the risk assessment division had
completed risk management training for over 1,100 headquarters and field
managers.

Efforts to integrate and replace HUD’s information systems, begun in 1991,
received support and higher priority under HUD’s 2020 plan. As of
December 1998, HUD reported, it had developed and deployed 11 new
financial management systems or components of these systems. For
example, in March 1998, the Office of Housing deployed the first phase of
the real estate management system, a new system being developed to
implement 2020 reforms. In addition, the Office of the CFO developed and
deployed a consolidated general ledger for fiscal year 1999 that will
include summary transactions for the entire Department. The Office of the
CFO is also developing a risk evaluation database that will be used to
identify programs needing special risk reviews. The database will include
information on the programs’ funding, as well as findings reported by us,
HUD’s Inspector General, and internal reviews. Further agencywide
improvements include cleaning up certain data elements in the
Department’s information systems and verifying the reliability of these and
other data. Finally, HUD recently reported that it had completed all of its
year 2000 renovations for both mission-critical and non-mission-critical
systems and had finished certifying 100 percent of these systems and
implementing 97 percent of them.

Under its 2020 plan, HUD has significantly revised its organization and
redeployed its staff in an effort to operate more efficiently and provide
better service to its customers. Specifically, it has consolidated programs
and centralized processes and functions within and across program areas,
transferring much of its workload from its 81 field offices to several

5
 HUD’s financial statement audit for fiscal year 1998 had not been issued when we were preparing our
testimony statement, but FHA’s financial statements for fiscal year 1998 had been issued. We
understand HUD’s financial statements will be issued shortly.



Page 4                                                                 GAO/T-RCED/AIMD-99-126
                         specialized national centers. As it completes these workload transfers, it is
                         reassigning staff and retraining them to perform their new functions.

                         HUD  has also strengthened its management reform efforts by linking them
                         to the strategic and annual plans it has developed under the Government
                         Performance and Results Act of 1993.6


                         In 1994, we designated HUD programs as a high-risk area because of
Major Management         serious, long-standing departmentwide deficiencies in four management
Challenges               areas. These deficiencies, taken together, placed the integrity and
                         accountability of HUD’s programs at high risk. First, internal control
                         weaknesses, such as a lack of necessary data and management processes,
                         were a major factor leading to the scandals. Second, poorly integrated,
                         ineffective, and generally unreliable information and financial
                         management systems did not meet the needs of program managers and
                         weakened their ability to provide management control over housing and
                         community development programs. Third, HUD had organizational
                         problems, such as overlapping and ill-defined responsibilities and
                         authorities between its headquarters and field organizations and a
                         fundamental lack of management accountability and responsibility.
                         Finally, an insufficient mix of staff with the proper skills hampered the
                         effective monitoring and oversight of HUD’s programs and the timely
                         updating of procedures. Our recent work indicates that these management
                         deficiencies continue to exist or it is too soon to tell whether HUD’s
                         reforms will resolve them.


Problems With Internal   While HUD has initiated actions that should help to address its internal
Controls Persist         control weaknesses, material internal control weaknesses persist in its
                         management of the Section 8 subsidy payment process, which provides
                         $18 billion in rental assistance; control and management of staff resources;
                         management of losses resulting from defaults in the single-family and
                         multifamily insurance programs; implementation of automated systems to
                         provide needed management information or reliable data; and monitoring
                         of multifamily properties and of the single-family and multifamily notes
                         inventories. In addition, we have reported recently that HUD has not
                         adequately monitored, among other things, contractors’ management of
                         the Department’s real estate assets; appraisals of properties purchased



                         6
                          The Results Act seeks to shift the focus of government decision-making and accountability from
                         activities to results.



                         Page 5                                                                 GAO/T-RCED/AIMD-99-126
                            with FHA-insured loans; and its process for deobligating funds no longer
                            needed for Section 8 project-based rental assistance contracts.

Material Internal Control   The most recently issued financial statement audits, performed by HUD’s
Weaknesses                  Inspector General and KPMG Peat Marwick, found continued material
                            internal control weaknesses in both HUD and FHA’s programs.

                            The Inspector General’s fiscal year 1997 financial statement audit
                            continued to find material weaknesses in HUD’s internal controls, and the
                            Inspector General reported that HUD continues to face major challenges in
                            its efforts to correct long-standing material internal control weaknesses.
                            For example, HUD reported that it spent about $18 billion to provide rent
                            and operating subsidies through a variety of programs. On the basis of
                            data for calendar year 1996, HUD estimated that it had provided over
                            $900 million in overpayments.7 This high level of improper payments exists
                            because HUD does not have adequate internal controls over the process of
                            verifying tenants’ self-reported income—the primary factor in determining
                            the amount of assistance HUD pays.8 In fiscal year 1998, HUD unveiled a
                            multifaceted plan to identify households’ unreported and/or underreported
                            income.

                            In our January 1999 report, we pointed out that KPMG Peat Marwick’s audit
                            of FHA’s financial statements for fiscal year 1997 continued to find material
                            weaknesses in FHA’s internal controls. These weaknesses included
                            insufficient staff and administrative resources for such tasks as
                            performing loss mitigation functions,9 managing troubled assets, and
                            implementing new automated systems; inadequate emphasis on providing
                            early warning of, and preventing losses due to defaults on insured
                            mortgages; and resolving remaining problems with accounting and
                            financial management systems. The report added that because of the
                            issues’ complexity, implementing sufficient changes to mitigate these
                            internal control weaknesses will take several years. After we issued our
                            January 1999 report, KPMG Peat Marwick LLP issued, on March 5, 1999, its
                            unqualified opinion on FHA’s federal accounting-based financial statements
                            for fiscal year 1998. However, the auditors did report a new material

                            7
                             Households generally are required to pay 30 percent of their income toward rent, and HUD provides
                            the balance of the rental payment. When households fail to disclose all of their income, HUD may end
                            up paying a greater rental subsidy than otherwise would be required.
                            8
                             Other material internal control weaknesses included the need to complete improvements to financial
                            systems, improve resource management, and continue efforts to improve the monitoring of
                            multifamily properties.
                            9
                             FHA’s loss mitigation program seeks, among other things, to mitigate losses resulting from
                            foreclosure by using alternatives to foreclosure, such as loan modifications.



                            Page 6                                                                  GAO/T-RCED/AIMD-99-126
                            internal control weakness in addition to those described above related to
                            the need for FHA to improve its process for preparing federal
                            accounting-based financial statements.

                            In addition to the issues disclosed by the audits of HUD’s and FHA’s financial
                            statements, we and HUD’s Inspector General have identified weaknesses
                            related to HUD’s contract management, including problems with the
                            Department’s automated procurement systems, assessment and planning
                            for contract needs, and oversight of contractors’ performance. Following
                            the Inspector General’s 1997 review of HUD’s contracting practices,
                            contracting departmentwide was added as a material internal control
                            weakness in HUD’s Federal Managers’ Financial Integrity Act (FMFIA)
                            assessment for fiscal year 1997.10 HUD is implementing reforms to address
                            these weaknesses, including appointing a chief procurement officer,
                            redesigning the contract procurement process, and establishing standard
                            training requirements for staff responsible for monitoring contractors’
                            progress and performance.

                            Some of the other material internal control weaknesses reported as open
                            under the FMFIA assessment for fiscal year 1997 pertained to HUD’s
                            (1) monitoring of insured mortgages and multifamily projects,
                            (2) Secretary-held multifamily and single-family mortgage notes
                            inventories, and (3) income verification process. HUD has reduced its
                            material weaknesses from 51 in fiscal year 1991 to the 9 remaining open as
                            of fiscal year 1997. Some of these remaining weaknesses are
                            long-standing—one dates back to 1983, while four others date back to
                            1993—and some, such as those relating to the $18 billion rental assistance
                            program, involve billions of dollars.

Problems in Monitoring      Despite its importance as a management control tool, monitoring
Existing Programs Persist   continues to be problematic for HUD in many program areas. Since the
                            Department announced its 2020 Management Reform Plan in June 1997,
                            we have issued reports pointing out problems with HUD’s (1) oversight of
                            real estate asset management contractors,11 (2) monitoring of the
                            performance of appraisers of selected properties for home buyers seeking


                            10
                              Management control programs for federal agencies are mandated by FMFIA, and requirements for
                            them were established by the Office of Management and Budget. Each year, federal departments are to
                            report whether their management control systems provide reasonable assurance that the requirements
                            of FMFIA are being met, identify any new material weaknesses and instances of nonconformance, and
                            report any actions taken to correct previously identified material weaknesses.
                            11
                             Single-Family Housing: Improvements Needed in HUD’s Oversight of Property Management
                            Contractors (GAO/RCED-98-65, Mar. 27, 1998).



                            Page 7                                                                GAO/T-RCED/AIMD-99-126
                        FHA  single-family loans in two field offices,12 (3) procedures for identifying
                        and deobligating funds that are no longer needed,13 (4) ability to ensure
                        that its housing preservation program is being managed effectively and
                        efficiently,14 and (5) oversight of lenders’ compliance with requirements of
                        the home improvement loan insurance program.15


Problems With Systems   While efforts to integrate HUD’s information and financial management
Persist                 systems are well under way, the Department will continue to be adversely
                        affected by inadequate systems and information until it has completed
                        these efforts. We reported in December 1998 that HUD has not finalized
                        detailed project plans or cost and schedule estimates for its financial
                        systems integration effort. We concluded that without such plans the
                        Department is likely to continue to spend millions of dollars, miss
                        milestones, and still not fully meet its objective of developing and fully
                        deploying an integrated financial management system. We also reported
                        that HUD has not yet established an effective process for managing its
                        information technology investments. As a result, it cannot effectively
                        monitor its progress in implementing the new systems and cannot be sure
                        that it is selecting the right projects. In addition, the fiscal year 1997 audit
                        of HUD’s consolidated financial statements continued to report material
                        internal control weaknesses in financial systems that were
                        departmentwide or FHA-wide. HUD agreed with our overall
                        recommendations to prepare complete and reliable estimates of the
                        life-cycle costs and benefits of the 1997 systems integration strategy. HUD
                        also agreed that the management and oversight of its systems integration
                        effort could be improved by fully implementing and institutionalizing the
                        provisions of the Clinger-Cohen Act and the Paperwork Reduction Act,
                        including our recommendations to implement defined processes for
                        managing information technology investments and for estimating costs.

                        Other problems with information and financial management systems were
                        identified by us, the Inspector General, or HUD. These problems included
                        (1) the effectiveness of HUD’s processes for taking unexpended balances
                        into account when determining funding needs as part of its budget

                        12
                         Appraisals for FHA Single-Family Loans: Information on Selected Properties in New Jersey and Ohio
                        (GAO/RCED-98-145R, May 6, 1998).
                        13
                         Section 8 Project-Based Rental Assistance: HUD’s Processes for Evaluating and Using Unexpended
                        Balances Are Ineffective (GAO/RCED-98-202, July 22, 1998).
                        14
                          The preservation program was aimed at keeping existing multifamily housing affordable for
                        lower-income households as the owners of these properties were approaching eligibility to pay off
                        their mortgages. See Housing Preservation: Policies and Administrative Problems Increase Costs and
                        Hinder Program Operations (GAO/RCED-97-169, July 18, 1997).
                        15
                         Home Improvement: Weaknesses in HUD’s Management and Oversight of the Title I Program
                        (GAO/RCED-98-216, July 16, 1998).
                        Page 8                                                          GAO/T-RCED/AIMD-99-126
                              process; (2) a February 1998 determination by HUD that 38 of its 92 systems
                              did not conform to the requirements of FMFIA and of the Office of
                              Management and Budget Circular A-127; and (3) a March 1998 report by
                              the Inspector General which continued to report material internal control
                              weaknesses in financial management systems including insufficient
                              information on the credit quality of individual multifamily loans and
                              insufficient information on FHA’s operations by program, geographical
                              area, or other relevant components.


Organizational Structure Is   During 1998, HUD implemented the organizational changes set forth in its
in Place, but Transfer of     2020 Management Reform Plan. All of HUD’s various offices, hubs, program
Functions and                 centers, and specialized and nationwide centers became operational.
                              However, the real estate assessment, enforcement, and financial
Responsibilities Is in        management centers will not be performing all of their centralized
Transition                    functions until 1999 and 2000. While the managers and staff we
                              interviewed regarded these organizational changes as beneficial overall, it
                              is still too soon to evaluate the effectiveness of HUD’s reorganization.

                              HUD’s new real estate assessment center has issued regulations on the
                              physical and financial assessments of multifamily properties and public
                              housing authorities. However, the center will not begin financial
                              assessments of multifamily properties until around April 1999, when
                              audited financial statements on the properties are submitted to HUD.
                              Although physical inspections of public housing authorities will start in
                              1999, financial assessments will not begin until 2000. The additional year is
                              needed to give housing authorities time to convert their annual financial
                              statements from HUD’s accounting guidance to generally accepted
                              accounting principles in accordance with the uniform financial standards
                              for HUD’s housing programs. The center began physically inspecting
                              multifamily properties in October 1998 and, according to HUD, had
                              inspected over 4,200 properties as of late December 1998.

                              HUD’s new enforcement center will investigate and take enforcement
                              actions against troubled multifamily and public housing authority
                              properties that do not comply with HUD’s regulations. Although the
                              enforcement center began operations on September 1, 1998, it is not
                              scheduled to perform all of its centralized functions until around
                              April 1999, when it is to begin receiving referrals of troubled multifamily




                              Page 9                                                 GAO/T-RCED/AIMD-99-126
                                  properties from the real estate assessment center.16 However, as of
                                  December 1998, the enforcement center was working on 200 multifamily
                                  property cases referred to it by housing staff, according to HUD. Also,
                                  according to HUD, debarments of landlords of multifamily properties
                                  totaled about 100 in 1997, more than three times the 1996 total.

                                  HUD’s new financial management center is assuming responsibility for the
                                  Department’s Section 8 financial management processing workload. The
                                  transfer of much of this workload from HUD’s public housing field offices
                                  was expected to be completed in January 1999. However, the transfer of
                                  the Section 8 financial management workload relating to 4,600 annual
                                  contribution contracts from the Office of Housing’s field offices was not
                                  expected to begin until February 1999 and is not scheduled to be
                                  completed until mid- to late summer 1999. In addition, the schedule for
                                  transferring the financial management workload for approximately 21,000
                                  housing assistance contracts from the Office of Housing’s field offices will
                                  depend on when contract administrators are selected and deployed.
                                  According to the director of the financial management center, the transfer
                                  may not take place until late 1999 or early 2000.

                                  There has not yet been a significant shift of functions and responsibilities
                                  from the field offices to the centers except at homeownership centers,
                                  according to the field office managers and staff we interviewed between
                                  July and October 1998.17 Office managers also indicated that the transfer
                                  of community service and outreach functions and responsibilities from the
                                  field offices to the community builders was in a transitional phase.

Field Office Staff Are Positive   A recent survey by the National Partnership for Reinventing Government
About Organizational Changes      showed that 70 percent of HUD’s workforce identified the agency’s
                                  reinvention efforts as a top priority. All of the managers and staff we
                                  interviewed said that the organizational changes under the 2020
                                  Management Reform Plan were beneficial overall. For example, some
                                  managers and staff stated that their responsibilities and lines of authority
                                  and accountability for programs were more clearly defined. In addition,

                                  16
                                   The referrals will be based on the properties’ physical and financial condition, the properties’
                                  management performance, and residents’ satisfaction. Before being referred to the enforcement
                                  center, public housing authorities will have 1 year to work with one of two troubled agency recovery
                                  centers within the Office of Public and Indian Housing to correct the deficiencies identified by the
                                  assessment center.
                                  17
                                    From July through October 1998, we interviewed HUD managers and staff at selected locations about
                                  the effect on their programs and work of the various organizational changes made under the 2020 plan.
                                  We judgmentally selected the Denver homeownership center; the Fort Worth, Chicago, Houston, and
                                  New Orleans field offices; the troubled agency recovery center at Memphis; and the real estate
                                  assessment and enforcement centers in Washington, D.C., to conduct our work.



                                  Page 10                                                                 GAO/T-RCED/AIMD-99-126
                                some managers and staff pointed out that obtaining clearance on routine
                                issues took less time because program managers in the field had greater
                                authority to make decisions. Managers and staff also stated that once the
                                various centers and community builders assume all of their functions, the
                                field offices will have more time to carry out their public trust
                                responsibilities—namely, compliance and monitoring. However, most
                                managers and staff we interviewed said the transfer of functions was in
                                transition, and they generally did not know when it would be complete.


Staffing Under the 2020         Because staffing reforms and workload transfers from the field offices to
Reform Plan Is in               the centers are still occurring, the effectiveness of HUD’s changes in
Transition                      correcting staffing deficiencies cannot be determined. Staff who were
                                reassigned during the reorganization were receiving training in their new
                                functions and both staff and managers were positive about the amount and
                                quality of the training.

Staffing and Workload Were in   Most of the field offices we visited initially lost staff following the 2020
Transition at the Offices We    staffing changes. However, some of these staff losses were recovered after
Visited                         HUD decided in May 1998 to assign unplaced staff to permanent positions.18
                                 According to HUD, most of the formerly unplaced staff had been assigned
                                positions as of September 1998, and most were in place. At a few
                                locations, some of the formerly unplaced staff will not be reporting to their
                                new positions until 1999. While most of the offices we visited reported
                                being fully staffed, three of the centers were understaffed. The
                                enforcement center had 62 percent of its authorized staff level, the real
                                estate assessment center 40 percent, and the Memphis troubled agency
                                recovery center 86 percent.19 HUD managers said the vacant positions in
                                these centers will be advertised sometime in 1999.

                                Once workload transfers are completed, managers at the field offices we
                                visited expect their workload to decrease, although these manager did not
                                know how much of a reduction would occur. There has not been a
                                significant shift in workload from the field offices to the centers, according
                                to the staff and managers we interviewed from July through October 1998.

                                18
                                 After making a number of personnel decisions in the fall of 1997 to implement the 2020 reforms, HUD
                                sent letters to approximately 3,000 employees notifying them that they had not been placed in
                                positions in HUD’s new organization. In May 1998, the Secretary announced that the downsizing
                                activity would cease and that the 1,300 staff who were still unplaced at that time would be given
                                permanent assignments.
                                19
                                  The troubled agency recovery center’s operations will address, among other things, the
                                recommendation of the National Performance Review (now the National Partnership for Reinventing
                                Government) that HUD target efforts to resolve severe difficulties with problem public housing
                                authorities.



                                Page 11                                                               GAO/T-RCED/AIMD-99-126
                              These managers and staff said the transfer of work to the centers and the
                              assumption by community builders of their responsibilities was in
                              transition.

                              Efforts to match workforce to workload at HUD’s homeownership centers
                              have presented difficulties. According to the Inspector General’s
                              December 1998 semiannual report, HUD’s single-family homeownership
                              centers cannot handle the workload currently associated with HUD’s
                              inventory of Secretary-held mortgages or inventory of single-family
                              properties, which HUD receives through foreclosures. This situation has
                              developed because HUD’s plans to sell the properties before they enter its
                              inventory have not evolved, and its plans to sell the existing notes
                              inventory have been postponed. HUD is currently hiring contractors to
                              assist in managing and disposing of its single-family properties.

                              In its annual performance plan for fiscal year 1999, submitted to the
                              Congress in March 1998, HUD noted that it lacks a single integrated system
                              to support resource allocation and no longer has departmental systems for
                              measuring work and reporting time. However, HUD’s 2020 Management
                              Reform Plan calls for HUD to implement a proposed resource estimation
                              and allocation process. In addition, HUD reported that it intends to work
                              with the National Academy of Public Administration to develop a
                              methodology or approach for resource management that will allow the
                              Department to identify and justify its resource requirements for effective
                              and efficient program administration and management. According to the
                              Academy, the resource estimation elements will include workload factors
                              and analysis based on quantifiable estimates of work requirements for
                              planning, developing, and operating current and proposed programs,
                              priority initiatives, and functions. The methodology will also enable HUD to
                              estimate resources for its budget formulation and execution and to link
                              resources to performance measures. Currently, work has been completed
                              on the resource management methodology and was being tested at one
                              office.

Managers Were Generally       The 2020 Management Reform Plan stated that HUD would retrain the
Positive About Training and   majority of its staff. The field office managers and staff we interviewed
Staff Skills                  during our 1998 field office visits reported that their training increased
                              significantly with the plan’s implementation. The managers and staff were
                              generally positive about the amount of training available to them and the
                              quality of the training. Training varied from that provided at universities,
                              to external professional certification training, to videotaped programs and
                              substantial on-the-job training needed because of staff reassignments. For



                              Page 12                                               GAO/T-RCED/AIMD-99-126
                     example, staff at the Memphis troubled agency recovery center reported
                     spending most of their first 3 months on the job in locally developed
                     training programs and in on-the-job-training with more experienced public
                     housing staff. Staff and managers reported a need for continuing program
                     area and specialized computer training.

                     In addition, managers reported during our 1998 field office visits that the
                     skills of their staff varied from adequate to excellent and were sufficient
                     for the staff to do their jobs, except in the case of some of the recently
                     assigned, formerly unplaced staff. The managers told us that while the
                     formerly unplaced staff may lack specific program knowledge, they have
                     the ability to do the work.


                     While HUD has initiated actions under the 2020 Management Reform Plan
Further Action       that could help to address its management deficiencies, the reforms are
Needed               not fully implemented or it is too soon to assess their effectiveness.

                 •   HUD  faces significant material internal control weaknesses, including
                     weaknesses in the control structure intended to help ensure that rental
                     assistance payments of $18 billion are based on accurate reports of
                     tenants’ incomes. As reform efforts are fully implemented, HUD needs to
                     ensure that the actions being taken under the 2020 reform plan and related
                     efforts will address the remaining material internal control weaknesses.
                 •   HUD will continue to be adversely affected by inadequate systems and
                     information until its systems integration efforts are successfully
                     completed. In the meantime, we believe HUD needs to strengthen its
                     management and oversight of efforts to integrate its financial systems and
                     the management of its information technology investments. In addition,
                     HUD needs to continue its efforts to bring nonconforming systems into
                     conformance with FMFIA requirements. As part of this process, HUD needs
                     to ensure that its assessments of systems to determine conformance are
                     well documented and verified. Finally, HUD needs to eliminate the material
                     internal control weaknesses related to systems.
                 •   In accordance with the Results Act, HUD needs to (1) monitor the
                     performance of the centers as they assume their functions, as well as track
                     the other organizational changes, to determine whether the 2020 reform
                     plan’s goals are being achieved and (2) closely monitor the
                     implementation of its staffing reform efforts to ensure that the field offices
                     and staff have the resources and skills to carry out the work assigned,
                     including the monitoring of programs and activities and the assessment of




                     Page 13                                                GAO/T-RCED/AIMD-99-126
outcomes. In addition, HUD needs to complete its efforts to develop a
process for identifying and justifying its staff resource requirements.


In closing, Mr. Chairman, given the severity of the management
deficiencies that we and others have observed, it would not be realistic to
expect that HUD would have substantially implemented its reform efforts
and demonstrated success in resolving its management deficiencies in the
2 years since we issued our last report. Nevertheless, with close oversight
by the Congress, HUD is making significant changes and has made credible
progress since 1997 in laying the framework for improving its
management. HUD’s Secretary and leadership team have given top priority
to addressing the Department’s management deficiencies. This top
management attention is critical and must be sustained in order to achieve
real and lasting change. Importantly, given the nature and extent of the
challenges facing the Department, it will take time to implement and
assess the impact of any related reforms. While major reforms are under
way, several are in the early stages of implementation, and it is too soon to
tell whether they will resolve the major deficiencies that we and others
have identified. Therefore, in our opinion, the integrity and accountability
of HUD’s programs remain at high risk. Mr. Chairman, this concludes my
statement. We would be pleased to respond to any questions that you or
Members of the Subcommittee may have.




Page 14                                               GAO/T-RCED/AIMD-99-126
Page 15   GAO/T-RCED/AIMD-99-126
Appendix I

Related GAO Products


              HUDInformation Systems: Improved Management Practices Needed to
              Control Integration Cost and Schedule (GAO/AIMD-99-25, Dec. 18, 1998).

              Section 8 Project-Based Rental Assistance: HUD’s Processes for Evaluating
              and Using Unexpended Balances Are Ineffective (GAO/RCED-98-202, July 22,
              1998).

              Home Improvement: Weaknesses in HUD’s Management and Oversight of
              the Title I Program (GAO/RCED-98-216, July 16, 1998).

              Appraisals for FHA Single-Family Loans: Information on Selected
              Properties in New Jersey and Ohio (GAO/RCED-98-145R, May 6, 1998).

              Housing Finance: FHA’s Risk-Sharing Programs Offer Alternatives for
              Financing Affordable Multifamily Housing (GAO/RCED-98-117, Apr. 23, 1998).

              Single-Family Housing: Improvements Needed in HUD’s Oversight of
              Property Management Contractors (GAO/RCED-98-65, Mar. 27, 1998).

              Year 2000 Computing Crisis: Strong Leadership Needed to Avoid
              Disruption of Essential Services (GAO/T-AMID-98-117, Mar. 24, 1998).

              HUD Management: Information on HUD’s 2020 Management Reform Plan
              (GAO/RCED-98-86, Mar. 20, 1998).

              Section 8 Tenant-Based Housing Assistance: Opportunities to Improve
              HUD’s Financial Management (GAO/RCED-98-47, Feb. 20, 1998).


              Housing Preservation: Policies and Administrative Problems Increase
              Costs and Hinder Program Operations (GAO/RCED-97-169, July 18, 1997).

              High-Risk Series: Department of Housing and Urban Development
              (GAO/HR-97-12, Feb. 1997).

              HUD: Field Directors’ Views on Recent Management Initiatives
              (GAO/RCED-97-34, Feb. 12, 1997).




(385788)      Page 16                                                GAO/T-RCED/AIMD-99-126
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