oversight

The U.S. Department of Housing and Urban Development Needs to Improve Its Existing Procedures and Controls Regarding Its Management of Human Capital

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-09-30.

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

                                                                    Issue Date
                                                                             September 30, 2008
                                                                    Audit Report Number:
                                                                             2008-CH-0003




TO:        John W. Cox, Chief Financial Officer, F
           Keith A. Nelson, Assistant Secretary for Administration, A


FROM:      Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The U.S. Department of Housing and Urban Development Needs to Improve Its
            Existing Procedures and Controls Regarding Its Management of Human
            Capital

                                      HIGHLIGHTS

 What We Audited and Why

             We reviewed the U.S. Department of Housing and Urban Development’s (HUD)
             management of human resources. We initiated the review based on our annual
             audit plan and our strategic plan to help HUD resolve its major management
             challenges. The review also addressed a complaint to our Hotline regarding the
             adequacy of HUD’s Total Estimation and Allocation Mechanism (TEAM) system.
             Our objectives were to determine the adequacy of HUD’s staffing resources in
             meeting its program objectives and whether HUD’s offices used HUD’s Resource
             Estimation and Allocation Process (REAP) studies when they had the ability to hire.
             This is the second of three audit reports planned on HUD’s management of its
             human resources.

 What We Found

             HUD lacked a valid basis for assessing its human resource needs and allocating
             staff within its program offices. Three of the five offices statistically selected for
             review could not provide adequate documentation to support their assessment of
             human resource needs and allocation of staff among their headquarters and field
           office locations. As a result, HUD lacked assurance that its allocation of staff was
           based on supportable need and it accurately determined the human resources
           required to meet its performance goals under the Government Performance Results
           Act (GPRA).

           HUD’s program offices used the REAP studies when they had the ability to hire;
           however, they lacked adequate documentation to support their hiring practices. In
           particular, five of the seven HUD program offices selected for review were unable to
           provide adequate documentation to support their hiring of staff. As a result, HUD
           lacked assurance that its program offices’ hiring was appropriate.

           Lastly, the complainant’s allegation regarding the adequacy of HUD’s TEAM system
           lacked a supportable basis as he did not have a complete understanding of the system.

What We Recommend


           We recommend that HUD’s Chief Financial Officer implement a plan detailing how
           HUD’s program offices will use REAP and the TEAM systems to determine which
           program offices need to be reassessed, continue providing training, and obtain
           feedback from the Office of Fair Housing and Equal Opportunity regarding the pilot
           of the TEAM system’s allocation module. If the pilot is determined to be
           successful, HUD’s Chief Financial Officer should take the necessary steps to
           implement the allocation module in HUD’s other program offices.

           We also recommend that HUD’s Assistant Secretary for Administration ensure that
           HUD implements adequate controls to ensure that its program offices comply with
           its internal hiring procedures.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please
           furnish us copies of any correspondence or directives issued because of the audit.

Auditee’s Response

           We provided the results of our reviews to HUD’s management during the audit.
           We also provided our discussion draft audit report to HUD on August 28, 2008.
           We conducted an exit conference with HUD’s management on September 18, 2008.

           We asked HUD’s management to provide written comments on our discussion draft
           audit report by September 26, 2008. HUD’s management provided written
           comments to the discussion draft report, dated September 26, 2008. HUD generally
           disagreed with the findings and recommendations. The complete text of HUD’s
           written comments, along with our evaluation of that response, can be found in
           appendix A of this report except for 140 pages of documentation that was not
           necessary for understanding HUD’s comments.


                                             2
                             TABLE OF CONTENTS

Background and Objectives                                                           4

Results of Audit
      Finding 1: HUD Lacked a Valid Basis for Assessing Its Human Resource Needs
                 and Allocating Staff Among Its Program Offices                     6

      Finding 2: HUD Program Offices Lacked Adequate Documentation to Support
                 Their Hiring Practices                                            11

Scope and Methodology                                                              15

Internal Controls                                                                  17

Appendixes

   A. Auditee Comments and OIG’s Evaluation                                        19
   B. Offices Selected and Corresponding Pay Periods                               56
   C. Federal Requirements                                                         57




                                             3
                      BACKGROUND AND OBJECTIVES

In the late 1990s, the Office of Management and Budget, the Government Accountability Office,
and the United States Congress criticized the U.S. Department of Housing and Urban Development
(HUD) for its inability to estimate its staffing needs and support its staffing requests. HUD
terminated its previous resource management system in 1995. Since that time, HUD’s staffing
levels have fluctuated while HUD’s workload has grown. As a result, HUD and Congress
recognized the need for an approach to estimate, justify, allocate, and manage HUD’s staffing
resources.

Congress asked the National Academy of Public Administration (NAPA) to work with HUD to
develop a resource management methodology. Therefore, an advisory group consisting of HUD
staff and NAPA representatives was established. The group studied the best practices of other
government agencies in the area of resource management and recommended the implementation of
the resource management methodology known as the Resource Estimation and Allocation Process
(REAP). HUD’s former Deputy Secretary accepted the methodology and agreed to the
implementation of REAP over an 18-month period.

In a report, dated October 1999, NAPA recommended that REAP apply to both HUD headquarters
and the field offices to cover all work (including contractor work) and be validated on a continuous
basis. The report also recommended that the REAP system consist of three components: resource
estimation, resource allocation, and resource validation.

REAP studies, which provide the data for resource estimation, are performed periodically and
when requested. HUD began conducting REAP studies in August 2000 and completed the initial
studies in December 2001. HUD was reexamined in a second round of REAP studies in 2003 and
2004. HUD’s Office of Administration was reviewed for a third time in 2006. REAP establishes a
staffing baseline for budget formulation and execution, strategic planning, organization and
management analysis, and ongoing management of staff resources.

To provide a continuous validation of REAP, an automated information system known as Total
Estimation and Allocation Mechanism (TEAM) was developed and became operational in fiscal
year 2002. TEAM is a Web-based computer system that collects workload accomplishments and
employee time use on a sampling basis. All employees at HUD headquarters and in the field
offices record how much time they spend working on different activities and processes during a
randomly selected two-week period every quarter.

TEAM accumulates its information in a centralized database and provides managers and staff with
the ability to query and analyze the stored data. TEAM offers a variety of reports that are available
to all HUD employees. The reports can be used for full-time equivalent management, work
planning, identifying productivity among different locations, identifying optimal staff adjustments
and reallocation, determining whether management plan goals are met, and providing data support
for management analysis studies.




                                                 4
HUD implemented REAP and TEAM to aid in its budget formulation and execution process and
resource management. REAP and TEAM can also be used for HUD’s strategic planning process
and reporting.

We reviewed HUD’s management of its human resources. We initiated the review based on our
annual audit plan and our strategic plan to help HUD resolve its major management challenges.
The review also addressed a complaint to our Hotline regarding the adequacy of HUD’s TEAM
system. Our objectives were to determine the adequacy of HUD’s staffing resources in meeting its
program objectives and whether HUD’s offices used HUD’s REAP studies when they had the
ability to hire. This is the second of three audit reports planned on HUD’s management of its
human resources.




                                               5
                             RESULTS OF AUDIT

Finding 1: HUD Lacked a Valid Basis for Assessing Its Human Resource
         Needs and Allocating Staff Among Its Program Offices
HUD lacked a valid basis for assessing its human resource needs and allocating staff within its
program offices. Three of the five offices statistically selected for review could not provide
adequate documentation to support their assessment of human resource needs and allocation of
staff among their headquarters and field office locations. These conditions occurred because HUD
did not ensure that its program offices maintained documentation to support its staffing and
allocation decisions and did not encourage the program offices to utilize TEAM, as a resource
management tool. As a result, HUD lacked assurance that its allocation of staff was based on
need and that it accurately determined the human resources required to meet its performance goals
under the Government Performance Results Act (GPRA).



 Program Offices Lacked
 Documentation to Support
 Their Assessment of Human
 Resources and Staffing
 Allocations

              We statistically selected five of HUD’s 16 program offices to review their
              methodologies for assessing their human resource needs and allocating staff within
              their offices. The selected offices were the Government National Mortgage
              Association, Office of Departmental Operations and Coordination, Office of Fair
              Housing and Equal Opportunity, Office of Public and Indian Housing, and Office of
              Housing. We reviewed the offices’ analysis for determining to hire and the
              allocation of their staff. Of the five offices, only two (the Office of Departmental
              Operations and Coordination and the Government National Mortgage Association)
              provided sufficient documentation to support its staffing decisions. The remaining
              three program offices indicated they used various methodologies for estimating and
              allocating staff and in determining their staffing needs.

                      •    The Office of Fair Housing and Equal Opportunity based its hiring and
                           placement of staff on its ability to fill critical positions, attrition, and
                           its staffing plan requirements. Its management staff said that they used
                           TEAM for budget purposes only. For the allocation of staff, the office
                           used 10-year studies performed by HUD’s Office of Policy
                           Development and Research along with studies from outside
                           contractors, demographics, performance goals, work volume, and
                           complaints. According to the Deputy Assistant Secretary for
                           Operations and Management, the office’s REAP data were outdated



                                                 6
                       and the system was not a useful tool for hiring assessment and the
                       placement of staff within its field offices. As of August 2008, the
                       office was in the process of updating fields to capture current
                       workload information. Further, some employees did not report all of
                       their time in the TEAM system.

                 •     The Office of Public and Indian Housing considered staff losses and
                       its attrition rate to determine how many new staff to hire, in addition to
                       the hiring priority list provided by the office’s General Deputy
                       Assistant Secretary. According to the Director of Budget/Chief
                       Financial Officer, the office’s REAP data were only a snapshot in
                       time; therefore, the office based its hiring decisions on available
                       funding and not full-time equivalents. It used REAP and TEAM for
                       its budget formulation when requesting resources to justify staffing
                       level requests. As of August 2008, the Director said that the office
                       was working with its field offices to change factors and outputs in the
                       TEAM system to reflect current work activities.

                 •     The Office of Housing was not fully using the TEAM reports.
                       According to the office’s Director of Salaries and Expenses Budget
                       Division, the REAP refresh studies were outdated, therefore, not used
                       exclusively. The office determined its hiring and allocation of staff
                       based on staff productivity, the President’s Management Agenda, the
                       annual performance plan, and other available resources.

          Although the previously mentioned offices indicated that they performed their own
          analyses for assessing their human resource needs and allocating staff, they were
          unable to provide any or adequate documentation to support their staffing
          determinations.

HUD Was Not Fully Committed
to Using REAP and TEAM

          HUD did not ensure that its program offices maintained documentation to support
          their staffing and allocation decisions and did not encourage the program offices to
          utilize TEAM as a resource management tool to assist with assessing their human
          resource needs and for hiring decisions as reported in HUD’s annual performance
          and strategic management plans. According to management staff for HUD’s Office
          of the Chief Financial Officer, the system was a management tool that supported
          HUD’s compliance with GPRA. HUD received a green rating on the fiscal year
          2007 President’s Management Agenda Scorecard on its human capital initiative due
          to its implementation of TEAM as well as other factors.

          Although HUD may have received a successful scorecard rating, its program offices
          did not fully use the TEAM system, which could affect its future ratings. HUD


                                            7
stated in its fiscal years 2006 through 2011 strategic plans that it had implemented
the TEAM system. The system provides the following benefits: (1) estimating
resources for budget formulation, execution, and analysis; (2) linking resources to
performance measures specified in the annual performance plan under GPRA; and
(3) validating and monitoring resource use. Additionally, in its fiscal years 2004
through 2007 annual performance plans, HUD indicated that it would use TEAM to
support its fiscal years 2005 through 2008 budget justification requests and
assessment of its human resource needs and when making hiring decisions during
fiscal years 2004 through 2007. However, three of HUD’s program offices were
unable to provide documentation to support that the TEAM system was used in
their decision making process.

HUD’s program offices used the REAP studies to support their budget requests (see
finding 2); however, they had not fully adapted the TEAM system as one of the
ways of managing their human resource needs and for making hiring decisions.
Additionally, HUD used the TEAM system to justify its consolidated budget.
However, the system was not fully functional because the allocation module, which
supports the execution of HUD’s budget, was not in production for any of the
program offices.

HUD piloted the TEAM system allocation module with the Office of Fair Housing
and Equal Opportunity. However, the office’s staff involved with the pilot
informed us that they had not provided feedback to the Office of the Chief Financial
Officer regarding the pilot’s results and were uncertain whether they should initiate
contact to express their concerns with the allocation module. They also expressed
concern about whether they should continue to test the module due to lack of
communication with the Office of the Chief Financial Officer.

The TEAM system is comprised of the following eight modules: (1) workload (data
entry), (2) allocation, (3) resource, (4) setup, (5) time reporting, (6) extracts, (7)
queries, and (8) reports. Of all the modules contained in the system, the allocation
module is the primary module used to provide HUD headquarters and the field
offices with resource estimations and allocations, thereby ensuring a stronger basis
for workload and staff distribution. It allows HUD to allocate full-time equivalents
based on workload requirements and provides for a staffing negotiation process
between higher and lower levels of an organization. The allocation module tracks
accomplishments versus the allocation for workload, unit cost, and full-time
equivalent use for each program office location throughout HUD.

Although the allocation module had not been implemented as of August 2008,
TEAM provided various reports to assist HUD’s program offices in operating more
efficiently. The TEAM system contains various reports for managing full-time
equivalent management, work planning, productivity, management plan goals, etc.
The productivity reports assist management with identifying programs or locations
with apparent high and/or low productivity. The reports contain comparative index
indicators that compare actual unit costs to expected unit costs based on REAP



                                  8
          studies. This comparison helps managers validate the results of REAP studies and
          compare productivity among the various field office locations.

          The comparison index formula provides a quantitative analysis of the REAP and
          TEAM relationship. The acceptable range for the comparative index is between 80
          and 120. In those instances where the comparative indices are outside the
          acceptable range, management should determine the reasons why, such as workload
          and staffing imbalances, staffing shortages, lack of experience with the staff
          performing the tasks, etc.

          The reports showed that several program offices were operating outside acceptable
          ranges in more than one area. However, the offices did not mention using the
          reports to measure productivity when asked. For example, HUD’s Detroit Office of
          Public Housing reported 12 work codes and all 12 were outside of the acceptable
          ranges. During the end of the fiscal year, the office had comparative indexes as low
          as six in grant administration and as high as 450 in monitoring and assistance.
          However, the hiring of additional staff for the Detroit Office of Public Housing did
          not occur in fiscal year 2007. Whereas, HUD’s Minneapolis Office of Public
          Housing reported 12 work codes and 11 were outside of the acceptable ranges.
          Two additional staff were hired for the Minneapolis Office of Public Housing in
          fiscal year 2007. Although there are additional factors to consider, this information
          would have been invaluable in making hiring decisions and the allocation of staff,
          since the allocation module that assesses this information and provides for the
          allocation of full-time equivalents based on workload requirements was not
          available to the Office of Public and Indian Housing.

          According to staff from HUD’s Office of the Chief Financial Officer, the office
          provided training to the program offices in 2007 on how to use the TEAM system.
          However, management staff from the Government National Mortgage Association
          informed us that they were not aware of any recent training. Due to its failure to
          implement the allocation module; its program offices inability to provide supporting
          documentation used in assessing its human resource needs; and the lack of
          commitment to the TEAM system; HUD lacked assurance that its program offices
          managed their human resources efficiently and effectively and its decisions to hire
          and the allocation of staff were matched with their performance goals as required by
          GPRA.

Recommendations

          We recommend that HUD’s Chief Financial Officer

          1A.     Implement a plan detailing how HUD’s program offices will use REAP and
                  TEAM for estimating and allocating staff resources to ensure that HUD
                  meets GPRA requirements as reported in its annual performance and
                  strategic management plans.



                                            9
1B.   Publish criteria for the “re-reaping” of program offices on the HUDweb,
      provide on demand REAP studies pending funding availability, and review
      REAP, TEAM, and other data to identify program areas and programs,
      which are candidates for “re-reaping” and recommend studies to the affected
      program areas.

1C.   Continue providing training for HUD’s applicable program offices on how
      to use the TEAM system’s various modules.

1D.   Obtain feedback from the Office of Fair Housing and Equal Opportunity
      regarding the pilot of the TEAM system’s allocation module to determine
      whether the module provided the information necessary to assess HUD’s
      staffing resources. If the pilot is determined to be successful, HUD’s Chief
      Financial Officer should take the necessary action to implement the
      allocation module in HUD’s remaining program offices.




                                10
Finding 2: HUD Program Offices Lacked Adequate Documentation to
                   Support Their Hiring Practices
HUD program offices used REAP to support their hiring decisions; however, they did not always
maintain adequate documentation to support their hiring practices. Specifically, five of the seven
program offices reviewed could not provide adequate documentation to support the hiring of staff
during fiscal year 2007. This condition occurred because HUD lacked adequate procedures and
controls to ensure that its program offices initiated the actions necessary to comply with its hiring
control procedures. As a result, HUD lacked assurance that its program offices appropriately hired
staff in accordance with HUD’s requirements.


 HUD’s Use of REAP


               HUD’s Office of the Chief Financial Officer used REAP as a baseline when
               determining full-time equivalents. The office issued the program offices their full-
               time equivalent ceiling based on prior years and the full-time equivalents did not
               exceed the recommended full-time equivalents contained in the REAP studies. The
               program offices are required to review their full-time equivalent allocation and the
               availability of funds to determine whether they could bring new staff onboard.

 Hiring Control Procedures

               According to the former Deputy Assistant Secretary for Human Resource
               Management, HUD’s Office of Administration developed the senior management
               approval process in response to a congressional mandate. The office incorporated this
               approval process into its hiring control procedures guidance for all program offices
               to control the hiring of grades 14 and15 staff positions. According to these
               procedures,

                   •   Senior management approval from the appropriate official called for under
                       the hiring control procedures guidance in effect during that time was
                       required when hiring a high-grade level employee, such as grade 14 or 15
                       positions.

                   •   Program offices were responsible for managing their full-time equivalents
                       and validating their full-time equivalent ceiling and availability of funds.

                   •   Information required for budget certification and/or external hiring approval
                       was required to be properly documented. Certification documents were to
                       be authorized and maintained by the budget office of the hiring program
                       office to verify that proper consideration was given to all pertinent
                       management-related information necessary to reach sound hiring decisions.



                                                 11
           Using data obtained from the National Finance Center’s database, we identified the
           number of staff hired during fiscal year 2007 for each of HUD’s program offices. We
           then selected the program offices that hired 10 or more staff per pay period during
           fiscal year 2007 to determine whether they complied with HUD’s hiring control
           procedures.

HUD’s Program Offices Not in
Full Compliance with HUD’s
Hiring Control Procedures

           Five of the seven program offices reviewed (Offices of Departmental Management,
           Administration, Community Planning and Development, Fair Housing and Equal
           Opportunity, and Housing) did not fully comply with HUD’s hiring control
           procedures during fiscal year 2007. The Offices of General Counsel and Public and
           Indian Housing provided sufficient documentation to support that they complied
           with the hiring procedures.

           Using the requirements of HUD’s hiring control procedures, we identified the
           following deficiencies for the five program offices:

              •   All five failed to provide adequate documentation supporting the
                  certification of the availability of funds and full-time equivalents.

              •   Only one program office did not provide adequate documentation
                  supporting that the appropriate senior management approval was obtained
                  before the hiring of two staff employees at grades 14 or 15.

           The following chart provides a summary of the hiring control procedures
           deficiencies for the program offices reviewed.




                                             12
                          Inadequate certifications of the      Inadequate documentation
                         availability of funds and full-time   supporting appropriate senior
         Offices                     equivalents                  management approval
   Office of
   Departmental
   Management
   Office of
   Administration
   Office of
   Community
   Planning and
   Development
   Office of Fair
   Housing and Equal
   Opportunity
   Office of General
   Counsel
   Office of Housing
   Office of Public &
   Indian Housing


Lack of Controls

            HUD lacked adequate procedures and controls to ensure that its program offices
            followed its hiring control procedures. The Office of Administration’s staff said
            that written senior management approval from the Assistant Secretary for
            Administration would not be logical since he would be approving his own office’s
            requests. Additionally, regarding the lack of documentation certifying the
            availability of funds and full-time equivalents for its hires, the Offices of
            Administration and Fair Housing and Equal Opportunity indicated that they tracked
            their funds and full-time equivalents; therefore, they complied with the hiring
            control procedures, although they did not have certification documentation.

            For the seven program offices reviewed, none was able to provide an accurate listing
            of the staff hired for the selected pay periods reviewed during fiscal year 2007. For
            example, the Offices of Housing and Community Planning and Development were
            unable to provide information or complete information about the staff hired during the
            selected pay periods; therefore, they could not provide certifications of availability of
            funds and full-time equivalents for all staff hired, or the information provided could
            not be reconciled with their new hires. In reviewing the information that was provided
            by the program offices, we determined that some of the information conflicted with
            the data contained in the National Finance Center’s database and the hiring data
            provided by HUD’s Employee Service Center, such as staff’s grade levels at the time
            of hire.

            In reviewing the data from the National Finance Center’s database and comparing
            the information to documentation provided by HUD’s Employee Service Center,
            such as Standard Form 50s, Standard Form 52s, and appointment affidavits, we



                                               13
          determined that the information did not always reconcile. For instance, we
          identified discrepancies in employees’ hiring dates, grade levels at their time of
          appointment, and geographic locations. Also, in determining the political
          appointees hired during our audit period, according to the National Finance
          Center’s database, there were only two political employees hired; however, HUD’s
          program offices provided documentation supporting that their were additional hires.

          Because of HUD’s inadequate procedures and controls, it lacked assurance that its
          program offices appropriately hired staff in accordance with its requirements.
          Additionally, due to the information discrepancies, it lacked assurance that
          information maintained in its systems and by its program offices was accurate.

Recommendations

          We recommend that HUD’s Assistant Secretary for Administration

          2A.     Implement adequate procedures and controls to ensure that HUD’s program
                  offices comply with its hiring control procedures.

          2B.     Reconcile discrepancies between HUD’s Integrated Human Resources and
                  Training System and the National Finance Center database to ensure that
                  they contain accurate information.




                                           14
                             SCOPE AND METHODOLOGY

To accomplish our audit objectives, we reviewed

    •   The National Academy of Public Administration’s 1999 study, entitled “Aligning
        Resources and Priorities at HUD, Designing a Resource Management System”; GPRA;
        REAP studies; HUD’s strategic plans for fiscal years 2006-2011 and annual plans for fiscal
        years 2004-2007; TEAM reports; HUD’s Memorandum for Principal Staff regarding HUD’s
        fiscal year 2007 Hiring Control Procedures revisions, dated February 14, 2006, December 19,
        2006, March 2007, and April 5, 2007;

    •   HUD program offices’ hiring documentation from the Offices of Departmental Management,
        Administration, Community Planning and Development, Fair Housing and Equal
        Opportunity, General Counsel, Housing, and Public and Indian Housing;

    •   HUD’s hiring information in the National Finance Center’s database; and

    •   Hiring documentation maintained by the HUD’s Employee Service Center.

We also we interviewed HUD’s management and staff.

Using HUD’s 16 program areas, 160 program offices and 88 sub-offices as the population, we
developed a multi-stage sampling plan. This plan allowed us to randomly select five program
areas (Office of Departmental Operations and Coordination, Fair Housing and Equal Opportunity,
Governmental National Mortgage Association, Office of Housing, and Office of Public and Indian
Housing) to review staff geographically, and determine productivity based on full-time equivalent
allocations and REAP baselines.

Using the staffing data obtained from the National Finance Center’s database, we identified by
program office the number of staff hired during each pay period in fiscal year 2007. We also
obtained from this same database information on the staff hired during each pay period, such as the
employee’s name, position title at the time of hire, grade level at the time of hire, and geographic
location of hire. We selected from the universe of HUD’s 16-program offices1 all pay periods for
each program office in which the program office hired 10 or more staff during the pay period to
determine whether the offices selected complied with HUD’s hiring control procedures guidance
during the pay periods selected.

To determine our testing universe, we relied on information provided in the National Finance
Center’s database. We verified the data, whenever possible, by comparing the data to
documentation provided by the program offices and hiring documentation maintained by HUD’s
Employee Service Center. We also removed from our review any political appointees that we
determined were hired during the pay periods under review using the data sources listed above
1
 Excludes the Offices of Inspector General and Federal Housing Enterprise Oversight, which are two independent
offices within HUD that use independent resource management systems.



                                                        15
or that were brought to our attention by the program office and supported with adequate
documentation. The seven offices selected for review that hired 10 or more staff during a pay
period in fiscal year 2007 were the Offices of Departmental Management, Administration,
Community Planning and Development, Fair Housing and Equal Opportunity, General Counsel,
Housing, and Public and Indian Housing. The pay period(s) selected for review and their
corresponding dates during fiscal year 2007 are in appendix B of this audit report.

We performed our audit work between October 2007 and August 2008. We conducted our audit at
HUD’s headquarters in Washington, DC, and HUD’s Chicago regional office. The audit covered
the period October 1, 2004, through September 30, 2007. We extended this period as necessary.
We conducted the audit in accordance with generally accepted government auditing standards.




                                              16
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its mission,
goals, and objectives. Internal controls include the processes and procedures for planning,
organizing, directing, and controlling program operations. They include the systems for
measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

              We determined the following internal controls were relevant to our audit objectives:

              •       Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

              •       Validity and reliability of data - Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

              •       Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              •       Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if internal controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                                17
Significant Weaknesses


            Based on our review, we believe the following items are significant weaknesses:

        •   HUD lacked a valid basis for assessing its human resource needs and allocating staff
            within its program offices (see finding 1).

        •   HUD generally lacked adequate documentation to support its hiring practices (see
            finding 2).




                                              18
                        APPENDIXES

Appendix A

         AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation     Auditee Comments




Comment 1




Comment 2



Comment 3




                            19
Comment 4




Comment 5




Comment 6

Comment 7

Comment 8

Comment 9




            20
Comment 10




             21
Comment 11




Comment 12




             22
Comment 13




Comment 14




Comment 15




             23
Comment 16




             24
Comment 17




             25
Comment 18




Comment 19




Comment 20




             26
Comment 21




             27
Comment 22




Comment 23




Comment 24




             28
Comment 25




Comment 26




             29
Comment 27




             30
Comment 28




Comment 29




             31
Comment 30




Comment 31




             32
Comment 32




             33
Comment 33




Comment 34




             34
Comment 35




             35
Comment 36




             36
Comment 37




             37
Comment 38




Comment 39




Comment 40




             38
Comment 41




             39
40
Comment 42




Comment 43




             41
                         OIG’s Evaluation of Auditee Comments

Comment 1   We do not believe that a re-issuance of the discussion draft report is needed since
            HUD’s comments did not materially affect the overall findings reported in our
            discussion draft audit report. Based upon HUD’s comments, we adjusted this audit
            report, as necessary.

Comment 2   HUD contends the first audit objective, which states “to determine the adequacy of
            HUD’s staffing resources in meeting its program objectives” was not addressed in
            the draft report and did not appear to be addressed in the underlying audit work.
            We disagree. In assessing the adequacy of HUD’s human resources, an evaluation
            of whether HUD makes the best use of its available resources should be determined.
            In the management of human capital, HUD should assess whether it is using its
            human resources efficiently and whether it properly aligned within the organization
            in regards to meeting the various program offices’ objectives. Therefore, the audit
            findings, in particular finding 1 reported that HUD’s program offices were unable to
            support their staffing allocation decisions, which is one of the factors that could
            possibly affect whether a program office can sufficiently accomplish its program
            objectives. Further, determining whether its human resources were properly
            aligned and adequately assessing staffing needs within the organization would assist
            HUD in determining: (1) if additional staff is needed and if so, (2) where they are
            needed the most. Therefore, we did not adjust our audit objectives. Additionally,
            one of the requirements of GPRA is that HUD determines the resources needed to
            meet its program objectives. Therefore, assessing the alignment of staff and
            properly analyzing hiring decisions are components of the management of human
            capital.

Comment 3   HUD contends that the conclusion reached in finding 2, which states to determine
            whether HUD’s offices used HUD’s REAP studies when they had the ability to
            hire, was inconsistent and off-base since there appeared to be a failure to recognize
            the factors other than REAP studies that affect staffing and hiring decisions. We
            disagree. One of our audit objectives was to determine whether HUD’s program
            offices used the REAP studies when they had the ability to hire. We reported that
            HUD’s program offices did use the REAP studies in regards to the determination of
            full-time equivalents when they had the ability to hire, but lacked adequate
            documentation to support their hiring practices. For example, five of the program
            offices reviewed did not provide evidence that prior certification of full-time
            equivalents and/or funding available was performed before hiring staff. Further,
            one program office did not provide evidence that senior management approval was
            obtained prior to filling grade 14 and/or 15 staff positions. We took into
            consideration all factors that were presented to us during our audit and
            appropriately determined that HUD’s program offices, when compared to the REAP
            baselines, were under their total recommended full-time equivalents for the fiscal
            years reviewed.




                                             42
Comment 4   HUD disagreed with the discussion draft audit finding. It stated that finding 1,
            which states “HUD Lacked a Valid Basis for Assessing Its Human Resource Needs
            and Allocating Staff Among Its Program Offices”, contradicts finding 2 since it
            concludes that the Office of the Chief Financial Officer and program offices did use
            REAP information in allocating full-time equivalent staff resources in supporting
            hiring decisions. We do not agree. The audit report did not state “…in allocating
            full-time equivalent”, but instead reported “…in determining full-time equivalents”.
            REAP is the baseline for determining the full-time equivalents. However, the
            TEAM system substantiates or validates REAP. Therefore, it is possible to use
            REAP studies when program offices have the ability to hire, but not consider the
            information in which TEAM is reporting, especially if it contradicts or produces
            information that shows that REAP is no longer useful. For example, if the total unit
            costs of workload codes for a particular program office consistently exceed the
            expected unit costs reported in the REAP studies, then the REAP studies for that
            office may need revisiting or management needs to intervene to determine the
            underlying cause for discrepancies.

            Additionally, finding 1 did not exclusively focus on REAP. In fact, finding 1 did
            not even mention the REAP studies. We requested that the selected program
            offices explain the methodology they used in assessing human resource needs and
            for allocating staffing resources, then provide documentation to support the
            methodology. We did not specifically inquire about whether the program offices
            used REAP or TEAM in making its staffing decisions. As explained by the Office
            of the Chief Financial Officer, REAP and TEAM are a resource management tool;
            therefore, we did not imply in our audit report that the program offices must use
            REAP and TEAM. However, we would like to point out that HUD reported in its
            annual performance and strategic management plans that it uses TEAM to assess
            human resources needs and for making hiring decisions.

Comment 5   HUD contends that the four recommendations associated with finding 1 are
            unnecessary. We do not agree. Recommendation 1A was suggested because HUD
            reported in its annual performance and strategic management plans that it uses
            TEAM to assess human resource needs and in making hiring decisions. If this is
            the case, then HUD should implement a plan on how each program office will
            incorporate the systems in their planning/staffing processes. Recommendation 1B
            was suggested because in reviewing the TEAM reports, we identified program
            offices in which comparative indexes reported 999* or were outside acceptable
            ranges for all reported work codes. Therefore, in accordance with the TEAM
            handbook, when program offices indexes are not within acceptable ranges, it
            requires management to assess the issues and make a determination if the offices
            need to be “re-reaped”. Finally, in interviews with the program offices it was
            mentioned on more than one occasion that the REAP baseline data was not current.
            We suggested recommendation 1C because in order for a system to be useful, it
            requires a commitment from the program offices and a thorough understanding of
            how it can assist them in making decisions that affects HUD as a whole. We
            suggested recommendation 1D based on discussions with the team that participated



                                             43
            in the allocation module pilot. Therefore, we do not believe that the
            recommendations associated with finding 1 are unnecessary.

Comment 6   We disagree that we misinterpreted HUD’s compliance requirements with the
            Hiring Control Procedures and that HUD’s compliance requirements only require a
            certification of the availability of funding for a hiring action and not a certification
            of full-time equivalents. Page 1, paragraph 2, of HUD’s Memorandum for Principal
            Staff from the Assistant Secretary for Administration regarding HUD’s fiscal year
            2007 Hiring Control Procedures Revision, dated April 5, 2007, states that
            “documentation must be retained, certifying the availability of funds and full-time
            equivalents”. Further, to ensure that we were interpreting the Hiring Control
            Procedures guidance in the manner in which it was intended, we obtained written
            guidance and clarification from HUD’s former Deputy Assistant Secretary for
            Human Resource Management during the audit. Additionally, as pointed out in this
            report, two of the seven HUD offices reviewed provided adequate documentation of
            the certification of funds and full-time equivalents for the hires made during the pay
            periods reviewed in accordance with such procedures.

Comment 7   HUD contends that its program offices can exceed the full-time equivalent targets
            as long as they have the funding to cover the hiring actions. However, page 1,
            paragraph 1, of HUD’s Memorandum for Principal Staff from the Assistant
            Secretary for Administration regarding HUD’s fiscal year 2007 Hiring Control
            Procedures Revision, dated April 5, 2007, allow for a program office to hire staff
            when over its full-time equivalent ceiling if the office obtains prior approval.
            Further, the written response from the former Deputy Assistant Secretary for
            Human Resource Management mentions that over-ceiling offices can hire if they
            had an urgent requirement to backfill a vacancy, but they are required to comply
            with approval requirements. However, this situation does not negate the
            requirement for certifying the availability of full-time equivalents for other hires as
            called for in the Hiring Control Procedures and as reinforced by the former Deputy
            Assistant Secretary for Human Resource Management’s written clarification on
            interpreting the Hiring Control Procedures.

Comment 8   HUD contends its understanding was that all our sampled activity had a
            certification or sign-off on the funds availability. This understanding is not correct.
            All sampled activity did not contain certifications or sign-offs of funding
            availability. For example, in lieu of obtaining a certification or sign-off on the
            funds availability for some hires, some program offices provided spreadsheets,
            system printouts, and other documentation sustaining that at the end of fiscal year
            2007 the program office had funds available and/or had not exceeded its available
            funds during the fiscal year. However, the provided information did not constitute a
            “certification” as called for under HUD’s hiring control procedures The provided
            documentation either was not dated or contained a date after the hire in question
            was made; thereby, providing no assurance or support that an analysis was
            performed before the hiring decision was made that funds were available. The
            hiring control procedures require that the program offices maintain documentation



                                               44
            certifying the availability of funds and full-time equivalents, which was reinforced
            by the former Deputy Assistant Secretary for Human Resource Management’s
            written clarification on interpreting the hiring control procedures. We asked the
            former Deputy Assistant Secretary whether the documentation that must be retained
            certifying the availability of funds and full-time equivalents be dated at or before
            the date of hire. The former Deputy Assistant Secretary responded in writing that
            “Yes. Program offices were requested to certify funds and full-time equivalent
            availability before submitting recruitment requests to Office of Human Resources.”
            The former Deputy Assistant Secretary for Human Resources had specifically
            underlined the word “before” in her written response. Further, the comment that it
            was HUD’s understanding that the “OIG did find that all sampled activity did have
            a certification or sign-off on the funds availability” is contrary to other comments
            made by HUD in response to our discussion draft audit report. For example, in
            comment 37, the Office of Community Planning and Development stated, “During
            fiscal year 2007, the Office of Community Planning and Development did not
            obtain budget certification for each individual summer hire as the hires were paid
            from one central fund used by all program offices. The Office’s Human Resource
            Branch and Budget Division closely monitored the number of students hired to
            ensure that Office did not exceed the number of student hires covered in our 2007
            hiring plan (i.e. 20). In the future, the Office will ensure that all hiring actions
            (summer or otherwise) have the proper budget certification.”

            HUD contends that “with respect to compliance with the senior management
            approval control on grades 14 and 15, it appears that all sampled office activity was
            found to be in compliance with the exception of the Office of Administration,
            which would in effect be approving its’ own requests.” We agree with this
            statement. HUD’s Memorandum for Principal Staff from the Assistant Secretary
            for Administration regarding HUD’s fiscal year 2007 Hiring Control Procedures
            Revision, dated April 5, 2007, states that “The filling of all (the word all is
            underlined in the memorandum) vacancies with a full performance level of general
            schedule 14 or 15 staff positions requires advance senior management approval.
            This review is applicable to internal and external recruitment actions. The Assistant
            Secretary for Administration or designee will retain senior management approval
            authority for supervisory and managerial positions. However, requests to fill non-
            supervisory positions with a full performance level of general schedule 14 or 15
            must be submitted to the Deputy Secretary for approval.”

            According to the written statements provided by HUD’s former Deputy Assistant
            Secretary for Human Resource Management, approvals must be in writing. Thus,
            the Office of Administration was unable to provide us with any documentation
            showing that it obtained the appropriate written senior management approval for its
            hires at grades 14 and 15.

Comment 9   We disagree with the comment that “under the circumstances, we see no substantive
            finding issues raised in this section of the draft report, and therefore no basis for the
            two recommended actions”. Recommendation 1A was suggested due to the



                                               45
              program offices’ noncompliance to the hiring control procedures that were in place
              during our audit period. Recommendation 1B was suggested because of the
              difficulty the program offices had in providing accurate information and the
              identified discrepancies between HUD’s Integrated Human Resources and Training
              System, the National Finance Center’s database, and the documentation provided
              by the program offices. Therefore, the recommendations are substantiated.

Comment 10 We commend HUD on its commitment to on-going management improvement
           efforts, such as the ones described in its comments regarding improving its existing
           workforce planning and hiring processes. We furthermore understand the
           challenges that HUD faces, especially at this pivotal time. However, our
           discussion draft report addressed HUD’s hiring and its methodology for allocating
           staff. HUD should consider this information as it works on improving its existing
           workforce planning and hiring processes.

Comment 11 The Office of Housing suggested that we refine or at least better define our purpose
           of the study in reference to whether HUD used the REAP system when they had the
           ability to hire. We do not agree. The discussion draft report stated that HUD uses
           REAP as a baseline in determining full-time equivalents and overall compared to
           the REAP baselines the program offices were under their recommend full-time
           equivalents for the fiscal year reviewed.

Comment 12 The Office of Housing contends that despite repeated attempts by them to provide
           information and data regarding their Workforce Analysis Management Database
           system, we did not acknowledge it as being evidence by not mentioning it in our
           discussion draft audit report. We do not agree with this statement. The Workforce
           Analysis Management Database system, which has a succession-planning
           component, was presented to us by the Office of Housing to address the audit
           finding reported during our phase 1 audit of HUD’s Management of Human
           Resources. Additionally, in considering this documentation as support for finding
           1, we would asked whether all of its hiring and staffing decisions were due to
           attrition. The Office of Housing did not provide names of staff or any other
           documentation for us to make this determination.

Comment 13 The Office of Housing contends that in addition to REAP and TEAM, HUD
           through the Office of Administration undertook the Logistics Management Institute
           study for resource needs and allocation. It also uses the Office of Administration
           system that is currently being implemented to replace the Workforce Analysis
           Management system and the Corrective Action Plan system to guide human
           resource levels and allocations. Although the Office of Housing mentions using
           other systems or studies to assist them with allocating human resources, the Office
           of Housing failed to provide documentation from the previously mentioned systems
           or study even though we requested any information/documentation from the Office
           of Housing on more than one occasion. Further, our written documentation
           requests to the various program offices did not indicate that it should only use
           REAP and TEAM. Our requests were open ended to include any



                                              46
              documentation/information the program offices used to support their staffing
              allocations and human resources assessments.

Comment 14 The Office of Housing contends we indicated that REAP and TEAM should be used
           exclusively as the means of identifying resource needs. We do not agree. There is
           no mention in our discussion draft audit report or this final audit report that
           indicates REAP and TEAM should be used exclusively. We requested that the
           Office of Housing explain how it assess its human resource needs and allocates
           staff, then provide documentation showing how its methodology was used for
           actual hires. We did not receive any documentation to illustrate its staffing
           assessment. Further, HUD itself reported that it uses TEAM in assessing human
           resource needs and for making hiring determinations as reported in its annual
           performance and strategic management plans.

Comment 15 The Office of Housing contends that similar to many other organizations throughout
           the department identified numerous requirements for justifying its hiring
           requirements, as well as the allocation of its human resources. We do not agree
           with this statement. We determined that the Office of Housing provided inadequate
           certifications of the availability of funds and full-time equivalents. Additionally, it
           did not provide documentation to support its analyses in which it stated it
           performed. The Office of Housing contends that its allocation and hiring decisions
           were dictated by requirements such as, subject matter review, corrective action plan
           initiatives, and direct responses to appropriation or programmatic legislation.
           Although this may be true, we did not receive any documentation.

Comment 16 Based on documentation provided (see comment 41), we removed the reference to
           the Government National Mortgage Association in regards to its assessment of
           human resource needs from this audit report.

Comment 17 The Office of Public and Indian Housing contends that where we reported that the
           program offices lacked documentation to support their assessment of human
           resources and staffing allocations is not true. We do not agree. The documentation
           received was inadequate in determining the assessment of human resources and
           staffing allocations. For instance, the Office of Public and Indian Housing did not
           identify the staff and/or positions in which an analysis was performed, the actual
           assessment, or provide documentation to determine why positions were filled before
           others.

Comment 18 The Office of Public and Indian Housing contends that we failed to give proper
           weight to the full spectrum of information that goes into a hiring decision despite
           repeatedly being briefed by all program areas. We do not agree. We acknowledged
           being briefed by the Office of Public and Indian Housing on several occasions
           regarding the information that goes into a hiring decision. However, when we
           requested documentation to support its analyses of the full spectrum of information,
           it did not provide the documentation.




                                               47
Comment 19 The Office of Public and Indian Housing contends we overemphasized the use of
           TEAM data, in particular, the “comparative index indicators” produced by the
           REAP and TEAM systems. We do not agree. We had several meetings with the
           office’s staff to obtain an understanding of its processes regarding hiring and the
           allocation of staff geographically. Even though the office was able to provide us
           with a thorough understanding of how they allocate staff geographically, the basis
           for the allocations, and the person responsible for these decisions, the office failed
           to provide documentation detailing the analysis of these processes. In regards to the
           audit report mentioning the comparative indexes, it was mentioned only as a
           consideration. The program offices have a tool that could possibly assist them with
           assessing their human resource needs since three of the five offices reviewed were
           unable to provide documentation to show whether they assessed their human
           resource needs among their field offices. The office also contends that all program
           offices agree that the usefulness of the TEAM data in hiring is minimal at best. We
           would like to point out that HUD stated in its annual performance and strategic
           management plans that it uses TEAM to make hiring decisions.

Comment 20 The Office of Public and Indian Housing contends that a good example of how
           TEAM data can be misleading is the very example we used on page 9 of our
           discussion draft audit report, specifically, our comparison of the Minneapolis and
           Detroit Field Offices of Public Housing. We do not agree. Our audit report stated
           that there are other factors that must be considered. Additionally, the TEAM
           system workload data should be maintained and updated regularly to keep abreast
           of changing workload requirements. If this was not being done on a regular basis as
           required, then the information from the system would be useless and not assist
           HUD in meeting its GPRA requirements.

Comment 21 The Office of Fair Housing and Equal Opportunity contends that technically our
           presentation was accurate though the statement regarding the use of TEAM for
           budgeting purposes only was not entirely consistent with documentation that
           previously provided. A management staff member for the office during one of our
           interviews made the statement in question about the Office of Fair Housing and
           Equal Opportunity’s use of TEAM. Nevertheless, we re-reviewed the
           documentation that the Office of Fair Housing and Equal Opportunity provided on
           May 20, 2008, and to which is referred to in the comments. The following
           documentation was provided to the audit team on May 20, 2008: (1) A full-time
           equivalent projection table, (2) a dollar report table showing funds, and a (3) fiscal
           year 2006 staffing plan. However, the office did not provide TEAM reports, its
           analysis of TEAM workload data, and any information from its TEAPOTS system
           or headquarters/field performance documentation as it mentions in its written
           comments to our discussion draft audit report. The office also acknowledged that it
           used data from TEAM reports and other program management tools to assist in the
           development of short-term and long-term performance goals, identification of
           location with apparently high/low productively, and allocation of human and fiscal
           resources. Although the office may perform this assessment using the various




                                               48
              resources previously mentioned, it did not provide us with any analyses performed
              on its human resources.

Comment 22 We commend the Office of Fair Housing and Equal Opportunity for utilizing data
           from TEAM reports and other program management tools to assist in the
           development of short-term and long-term performance goals, identification of
           locations with apparently high/low productivity, and allocation of human resources.
           The office also acknowledged that it used data from TEAM reports and other
           program management tools to assist in the development of performance goals,
           identification of location with apparently high/low productively, and allocation of
           human resources. Although it may perform this assessment using the various
           resources previously mentioned, the Office did not provide us with any analyses
           performed on its human resources.

Comment 23 The Office of Government National Mortgage Association requested that we
           rephrase a sentence from our report regarding training, in which we quoted an
           interview that was held with an Office of Government National Mortgage
           Association staff member. We agree to revise the statement in the audit report since
           the requested statement does not result in a change to the overall meaning. We note
           that additional conversations were held with a different Office of Government
           National Mortgage Association staff member, in which the staff member also said
           that no recent training had been received on the TEAM system. Finally, although
           the Office of Government National Mortgage Association attributed the quote to a
           specific individual, which we agree that this individual also mentioned training, it is
           the policy of the OIG not to identify individuals by name in its audit reports.

Comment 24 The Office of the Chief Financial Officer contends that recommendation 1A should
           be eliminated since REAP and TEAM data are designed for budget
           formulation/estimation and were optional for budget execution. The office also
           contended that there was no need for a plan since REAP and TEAM was utilized as
           the National Academy of Public Administration expected. We partially agree.
           According to the 1999 NAPA study, it recommended that the department: (1) adopt
           the resource management approach, one that bases estimate and allocations on the
           level of work and the specific location where it is to be performed, (2) use the
           resource management system to submit internal budget requests that reflect their
           workloads and needs, and (3) the responsibility to implement the resource
           management system be with the office that reports directly to the Secretary and this
           office should also include the strategic management function to reinforce the
           relationship between resource management and strategic planning and management.
           Further, according to the study, Congress requested that NAPA examine HUD’s
           practices for estimating human resource needs as part of a broader study, which also
           reviewed procurement practices and compliance with GPRA. Additionally, HUD
           reported in its annual performance and strategic management plans that it used
           TEAM to assess human resource needs and in making hiring decisions. If this was
           the case, then HUD should implement a plan on how the program offices would
           incorporate TEAM in their planning/staffing processes.



                                               49
Comment 25 The Office of the Chief Financial Officer requested that due to funding and time
           constraints we re-word recommendation 1B. We agree and revised the
           recommendation.

Comment 26 The Office of the Chief Financial Officer contends that recommendation 1C should
           be eliminated because over the last few years there was a substantial amount of
           training on REAP and TEAM. We suggested this recommendation due to the
           inability of HUD’s staff to answer questions regarding the types and uses of TEAM
           reports. Therefore, we did not remove this recommendation. Further, training
           should be ongoing as needed.

Comment 27 The Office of the Chief Financial Officer contends that we revise recommendation
           1D to state, “develop computer based training to assist program areas in
           implementing the allocation module.” We do not agree that recommendation 1D
           should be removed from our audit report based upon statements provided by the
           Office of Fair Housing and Equal Opportunity’s management and the pilot team.
           Further if the allocation module is currently in production, the last feedback
           meeting on record from the Office of Fair Housing was March 26, 2007, although
           the pilot was still in effect during August 2008 when we interviewed the Office of
           Fair Housing and Equal Opportunity’s pilot team members. During our interview,
           the team informed us that it had not been in contact with the Office of the Chief
           Financial Officer for a while and inquired of us whether they should contact the
           office regarding identified issues.

Comment 28 The Office of the Chief Financial Officer contends that we have a fundamental
           misconception of the REAP and TEAM process. Further, it stated that it was never
           envisioned that REAP and TEAM data would be the sole factor used in distributing
           full-time equivalents within its headquarters and field offices. Our discussion draft
           audit report did not state or allude that REAP and TEAM were the sole factor used
           in distributing full-time equivalents within HUD’s headquarters and its field
           locations. In interviewing representatives from the office, it was stated that REAP
           was used as a baseline in determining full-time equivalents and our audit report
           refers to its use as a baseline.

Comment 29 We disagree with the comment made by the Office of Public and Indian Housing
           that it was not true that HUD’s program offices lack adequate documentation to
           support their hiring practices. For example, as mentioned in our audit report, the
           majority of program offices reviewed could not provide key pieces of
           documentation to support their hiring practices such as a certification of the
           availability of funds and full-time equivalents; thus showing it analyzed the
           availability of funds and full-time equivalents prior to hiring. Further, the majority
           of program offices were unable to provide documentation to support their
           placement of staff in the field.

              We agree that REAP data was used in the annual budget justifications and HUD
              engaged in an agency wide validation process done on a quarterly basis for a two
              week period called TEAM. However, there is more to hiring than just these items


                                                50
              and HUD program offices had not provided adequate documentation to support
              their hiring practices.

Comment 30 We acknowledge that HUD is going through rapid change. However, rapid change
           highlights the importance of maintaining adequate documentation to support HUD’s
           staffing practices and to support its hiring and allocation determinations.

Comment 31 We acknowledge HUD’s program offices’ concern regarding the REAP studies
           being outdated and always being behind the curve. However, according to NAPA,
           “REAP is a tool that will permit HUD to most effectively manage toward its
           strategic and operating goals”. However, it requires strong management
           commitment.

Comment 32 The Office of Fair Housing and Equal Opportunity contends that it provided
           documentation on several occasions to support its hiring during pay periods 12 and
           13 of fiscal year 2007. Further, the office stated that its hiring during pay periods
           12 and 13 were “comprised primarily of summer hires”. However, the office did
           not indicate whether all its hires during pay periods 12 and 13 were summer hires.
           The office then describes the documentation provided for its summer hires;
           however; it did not mention whether it provided appropriate documentation
           certifying the availability of funds and full-time equivalents for those hires made
           during pay periods 12 and 13 that were not summer hires.

              In regards to the senior management approval forms, we agree that senior
              management approval was not needed for summer hires as senior management
              approval was only required when hiring staff at a grade level of 14 or 15, which was
              why the office was determined to be in compliance. Regarding the December 14,
              2007, fax, the office contends it provided copies of e-mails and personnel action
              routing and transmittal slips, which showed approvals of the summer hires. We
              agree with this statement; however, such documentation such as approvals to hire
              do not meet the requirements of the Hiring Control Procedures, which call for
              documentation must be retained, certifying the availability of funds and full-time
              equivalents. Further, the Hiring Control procedures do not exclude summer hires.
              We verified our understanding of the procedures with HUD’s former Deputy
              Assistant Secretary for Human Resource Management during our audit.

              Regarding the May 20, 2008, e-mail the Office contends it provided a full-time
              equivalents projection spreadsheet and Program Area Dollar Detail Report that was
              used to determine the availability of full time equivalents and funding to support the
              hires made during pay periods 12 and 13, such documentation did not constitute the
              certification of the availability of funds and full-time equivalents as called for in the
              Hiring Control Procedures. Such certifications of the availability of funds and full-
              time equivalents, which must be retained, provide an important control in ensuring
              that an analysis of the availability of funds and full-time equivalents was performed
              prior to the hire of a new staff member.




                                                 51
Comment 33 We commend HUD’s Office of Administration for taking such measures such as
           using a bi-weekly report that tracked full-time equivalent usage and availability,
           and the tracking of budget availability via funds tracking reports as well as holding
           meetings with the Assistant Secretary for Administration to determine the number
           of positions that could be filled within the Office of Administration. However, this
           does not address the certification of the availability of funds and full-time
           equivalents requirement as called for in the Hiring Control Procedures issued by the
           Assistant Secretary for Administration. The Hiring Control Procedures also call for
           such documentation to be retained.

              In seeking clarification regarding the procedures, we asked the HUD’s former
              Deputy Assistant Secretary for Human Resource Management during our audit,
              whether “verbal certification (with no documentation required) be sufficient to meet
              this requirement of documentation must be retained, certifying the availability of
              funds, and full-time equivalents.” In response, the Deputy Assistant Secretary for
              Human Resources provided written guidance that stated verbal certification was not
              sufficient. Verbal certification would not meet the intent of this requirement to
              retain documentation, as it would not be a reliable and consistent method of
              validating funds and full-time equivalents”. Further, we asked the former Deputy
              Assistant Secretary whether specifically the Office of Administration and the Office
              of Departmental Management must retain hard-copy documentation certifying the
              availability of funds and full-time equivalents for its hires, assuming they were not
              political appointees.” The former Deputy Assistant Secretary for Human Resources
              responded in writing that documentation must be maintained and that the previously
              mentioned offices were covered by the Hiring Control Procedures. The
              certification of the availability of funds and full-time equivalents’ requirement is a
              control that helps ensure that the program offices perform an analysis prior to each
              hire that funds and full-time equivalents are available for the hire.

Comment 34 We commend the Office of Administration’s statements that the Assistant Secretary
           for Administration approved all positions at the grade level of 14 and 15. However,
           page 1, paragraph 2, of HUD’s Memorandum for Principal Staff from the Assistant
           Secretary for Administration regarding HUD’s fiscal year 2007 Hiring Control
           Procedures Revision, dated April 5, 2007, also required that “requests to fill non-
           supervisory positions with a full performance level of general schedule 14 or 15
           positions must be submitted to the Deputy Secretary for approval.’ Thus, if any of
           the general schedule 14 or 15 staff hired were for non-supervisory positions, more
           than just the Assistant Secretary of Administration’s approval was required.

              We acknowledge that we were provided documentation from the Office of
              Administration of third parties attesting that the appropriate official granted senior
              management approval for the Office of Administration’s hired staff needing senior
              management approval. However, written guidance/clarification provided by
              HUD’s former Deputy Assistant Secretary for Human Resource Management
              during our audit cited that the senior management approval documentation called
              for under the Hiring Control Procedures needed to come from the individual



                                                52
              providing the senior management approval. Alternatively, it needed to show that
              the office obtained senior management approval.

              We commend the Office of Administration for receiving regular briefings with the
              Office of Human Resources on the status of HUD’s recruitments, including all
              positions at grade levels 14 and 15 staff positions, and for communicating with the
              Office of the Chief Financial Officer to ensure that before it hired staff, it was
              within the approved full-time equivalent levels and for its commitment of ensuring
              that adequate hiring controls were in place to avoid Anti-Deficiency Act violations.
              However, such actions did not exempt the Office of Administration from complying
              with the additional hiring controls required under HUD’s Hiring Control Procedures
              guidance.

Comment 35 We understand that changes in HUD’s hiring practices, policies, and procedures
           were and/or will be changing because of the new HUD Secretary’s Impact 200
           initiatives beginning with the fourth quarter of fiscal year 2008. As this is a recent
           development that was outside our audit period, we did not review the impact of the
           changes called for in the Secretary’s Impact 200 initiate. However, the
           requirements of the most recent Hiring Control Procedures guidance are still in
           effect and should be followed.

Comment 36 We commend HUD’s plan to use the new Mismatch Report that will begin on
           October 3, 2008, which will highlight the mismatches between HUD’s Integrated
           Human Resources and Training System and the National Finance Center’s
           databases and will be used for reconciling differences between these two databases.
           Further, we commend the Office of Human Resources’ plan to ensure that such
           reconciliation is completed on a timely basis and its development of standard
           operating procedures, as well as its emphasis on data quality and required
           reconciliation between HUD’s Integrated Human Resources and Training System
           and the National Finance Center as a critical aspect of conducting business.

Comment 37 We reviewed the chart of new hires provided and as with the previous chart of new
           hires provided, we determined that the list contained inconsistencies with the list of
           hires for the Office of Community Planning and Development that we obtained
           from the National Finance Center’s database. We verified the information provided
           against hardcopy data and other hiring documentation such as Standard Form- 50,
           appointment affidavits, start date for retirement calculation, etc. obtained from
           HUD’s Employee Service Center. For example, the office’s list contains a grade
           level of a staff person that was hired that differs from the grade level for that same
           staff from the National Finance Center’s database. We followed-up by obtaining
           documentation from the Employee Service Center, which supported the grade level
           of the staff that was listed in the National Finance Center’s database. Besides this
           example, there were other discrepancies noted with the office’s list of hires.

              As the Office of Community Planning and Development notes in its comments, it
              could not locate actions for two summer hires and can only surmise that although



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              the office had their names on record pending appointment, these two individuals did
              not report for duty. As with the previous comment, this highlights the need for
              HUD’s program offices to maintain an accurate list of their hires made. The
              memorandum, dated May 4, 2007, from the Deputy Secretary to Principal Staff
              referred to in the office’s comments authorized program offices to initiate actions
              for summer hires. However, the memorandum also mentions that offices that are
              under their authorized full-time equivalent ceiling may supplement their hiring
              needs with Student Temporary Employment Program (STEP) appointments.
              However, offices that were over-ceiling, but interested in having STEP
              appointments were allowed to do so if their full-time equivalent ceiling can be met
              by the end of the fiscal year or they coordinate with under-ceiling offices that are
              able to subsidize such hires. Thus, this memorandum did not constitute a
              certification of the availability of funds or full-time equivalents.

              Although the Office of Community Planning and Development stated that during
              fiscal year 2007 that it did not obtain budget certification for each individual
              summer hire, we commend the office’s commitment to ensuring in the future all
              hiring actions (summer and otherwise) will have the proper budget certification.
              We also commend the office’s Human Resource Branch and Budget Division for
              closely monitoring the number of students hired to ensure that the office did not
              exceed the number of student hires covered in its hiring plan.

Comment 38 See comment 37

Comment 39 We commend the Office of Community Planning and Development for attempting
           to locate its fiscal year 2005 staffing plan even as this audit concludes.

Comment 40 We commend the Office of Community Planning and Development for having and
           utilizing its Fair Share Model as an aid in determining field-staffing needs, in
           conjunction with information on office workload and attrition. We requested this
           information during our audit for the selected program offices. Although we
           appreciate the information/documentation, the office was not one of the five offices
           statistically selected for review.

Comment 41 We commend the Office of Government National Mortgage Association for having
           the procedures that it follows when filling vacancies. Additionally, we also
           commend the office for providing requested documentation along with its
           comments to the discussion draft report. We reviewed and accepted the provided
           documentation and adjusted this audit report.

Comment 42 We acknowledge receiving such documentation (see comment 41) as well as being
           informed of the Office of Government National Mortgage Association’s situation in
           terms of hiring.




                                               54
Comment 43 We commend the Office of Government National Mortgage Association for its
           commitment to more formally document all its human capital decisions made across
           the enterprise in fiscal year 2009.




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Appendix B

 OFFICES SELECTED AND CORRESPONDING PAY PERIODS

                                                   Pay
                          Office                  period   Start date   End date
                                                    12      June 19,    June 23,
             Office Departmental Management                   2007        2007
                                                      16   August 5,    Aug. 18,
                                                              2007        2007
                                                      19   Sept. 16,    Sept. 29,
                  Office of Administration                    2007        2007
                                                      11    May 27,      June 9,
                                                              2007        2007
             Office of Community Planning and         12    June 10,    June 23,
                        Development                           2007        2007
                                                      12    June 10,    June 23,
                                                              2007        2007
             Office of Fair Housing and Equal         13    June 24,     July 7,
                        Opportunity                           2007        2007
                                                      17    Aug. 19,     Sept. 1,
                Office of General Counsel                     2007        2007
                                                      16     Aug. 5,    Aug. 18,
                                                              2007        2007
                                                      20     Oct. 1,     Oct. 14,
                                                              2006         006
                                                      21    Oct. 15,     Oct. 28,
                     Office of Housing                        2006        2006
                                                      11    May 27,      June 9,
                                                              2007        2007
                                                      12    June 10,    June 23,
                                                              2007        2007
                                                      13    June 24,     July 7,
                                                              2007        2007
                                                      19   Sept. 16,    Sept. 29,
             Office of Public & Indian Housing                2007        2007




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Appendix C

                           FEDERAL REQUIREMENTS

Finding 1

Office of Management and Budget’s (OMB) Government Performance Results Act of 1993
(GPRA)

   •   Page 2, section 2(b)(6), states that the purpose of GPRA is to improve internal management
       of the federal government.

Sec. 1115. Performance Plans

“(a) In carrying out the provisions of section 1105(a)(29), the Director of the Office of
Management and Budget shall require each agency to prepare an annual performance plan
covering each program activity set forth in the budget of such agency. Such plan shall-

   •   (1) establish performance goals to define the level of performance to be achieved by a
       program activity;
   •   (2) express such goals in an objective, quantifiable, and measurable form unless authorized
       to be in an alternative form under subsection (b);
   •   (3) briefly describe the operational processes, skills and technology, and the human,
       capital, information, or other resources required to meet the performance goals;
   •   (4) establish performance indicators to be used in measuring or assessing the relevant
       outputs, service levels, and outcomes of each program activity;
   •   (5) provide a basis for comparing actual program results with the established performance
       goals; and
   •   (6) describe the means to be used to verify and validate measured values.”

National Academy of Public Administration report, entitled “Aligning Resources and Priorities at
HUD, Designing a Resource Management System”

              Criteria for the three elements of an effective resource management system:

              Resource Estimation System
                 • Develop requests for resource needs–for current and proposed policies and
                    programs–to prepare departmental budget justifications that clearly indicate
                    what work can be accomplished at different resource levels.

                  •   Develop budget requests based on factors beyond the immediate HUD
                      environment, such as the real estate market, public assistance policies, and
                      relevant economic data.



                                                57
   •   Provide sufficient information to OMB and Congress so they can gauge the
       resources needed to fulfill HUD’s mission and meet the requirements of
       HUD’s programs.

   •   Determine what work can be accomplished with HUD staff and what work
       would be done more efficiently if contracted out and facilitate cost
       comparisons for use of in-house staff versus contractors.

   •   Include justifications from staff at working levels in the field and
       headquarters.

   •   Develop resource estimates in sufficient time so that HUD’s budget office
       can evaluate them in conjunction with workload data, have time for give and
       take with the submitting program offices, and provide information useful for
       subsequent discussions with OMB and Congress.

Resource Allocation System
   • Relate the resources allocated to accomplishments as identified GPRA-
      required annual performance plans and HUD’s business and operating plans.

   •   Make informed resource allocation decisions when there are not enough
       resources to do all assigned work and be flexible enough to reassign
       resources when needs change.

   •   Obligate funds for annual contracts early in the year so contract amendments
       do not have to be issued on a monthly basis.

   •   Know resources, by budget object class, for the full fiscal year.

   •   Ensure that programs that operate well receive adequate resources so that
       they continue to function well and that troubled programs receive sufficient
       resources to improve.

   •   Link resources to essential functions of current programs and specify
       secondary activities that can only be met if additional resources are
       provided.

Resource Validation System
   • Ensure that resources are spent as Congress intended.

   •   Validate the outputs of the resource estimation and allocation system
       through time and workload reporting.

   •   Tie staff utilization to the performance measurement system, especially
       those relate to GPRA.



                                  58
                   •   Be sufficiently simple that staff do not view system requirements as onerous

                   •   Generate reports that enable HUD managers and staff to see how the data
                       they enter provide information useful to managing HUD programs and
                       operations.

Finding 2

HUD’s Memorandum for Principal Staff from the Assistant Secretary for Administration regarding
HUD’s fiscal year 2007 Hiring Control Procedures Revision, dated April 5, 2007

       •    Page 1, paragraph 2, states that program offices that are under their full-time equivalent
            targets may continue to hire up to their allocation, without prior approval, for positions
            at the general schedule 13 grade level and below.

       •    Page 1, paragraph 2, states that documentation must be retained, certifying the
            availability of funds and full-time equivalents.

       •    Page 1, paragraph 2, states that the filling of all vacancies with a full performance level
            of general schedule 14 or 15 will require advance senior management approval. This
            review is applicable to internal and external recruitment actions. The Assistant
            Secretary for Administration or designee will retain senior management approval
            authority for supervisory and managerial positions. However, requests to fill
            nonsupervisory positions with a full performance level of general schedule14 or 15
            must be submitted to the Deputy Secretary for approval. All senior management
            approval requests must be submitted to the Office of Human Resources for position
            management reviews and recommendations. Field human resource divisions will be
            consulted as appropriate. Supervisory and managerial requests will be processed the
            day of receipt. Nonsupervisory requests will be processed within 24-48 hours of
            receipt.

       •    Page 2, paragraph 2, states that these procedures apply to all positions in the categories
            described, regardless of how the positions are funded (example: salaries and expenses
            or working capital fund), except for positions in the Office of Inspector General and the
            Office of Federal Housing Enterprise Oversight. These procedures do not apply to
            personnel actions involving political appointees. In addition, these procedures are
            subject to such exceptions that the Secretary or the Deputy Secretary may grant, as
            necessary, to ensure the continued operation of HUD or to respond to emergencies.

HUD’s Hiring Control Procedures from the Office of Administration, Office of Human Resources,
revised March 2007

            •   Fifth page of document (page numbered 4), paragraph 6, line 1, states that one of
                the responsibilities of the program offices is to submit fiscal year 2007 staffing
                plans.



                                                  59
HUD’s Memorandum for Principal Staff from the Assistant Secretary for Administration regarding
Revised Hiring Control Procedures, dated February 14, 2006, and accompanying the document
Hiring Controls Guidance and Procedures, dated February 2006

          •   Third page of document (an unnumbered page), paragraph 2, line 1, states that these
              hiring controls apply to all positions in HUD, regardless of how the position is
              funded (example: salaries and expenses and working capital fund), except for
              positions in the Office of Inspector General and the Office of Federal Housing
              Enterprise Oversight and personnel actions involving political appointees.
              Paragraph 3, line 1, states that these procedures are also subject to such exceptions
              as the Secretary or Deputy Secretary may grant, as necessary, to ensure the
              continued operation of HUD or to respond to emergency situations.

          •   Third page of document (an unnumbered page), paragraph 4, line 1, states that
              program offices continue to be responsible for validating their full-time equivalent
              ceiling and availability of funds. Line 4 of the same paragraph states that program
              offices are responsible for managing their full-time equivalent. Further, the sixth
              page (page numbered 4), paragraph 3, line 1, states that the responsibility of the
              program office is to ensure that all requests to hire comply with its full-time
              equivalent allocation and departmental restrictions and that information required for
              budget certification and/or external hiring approval is properly documented and
              submitted to the Office of Human Resources to initiate the hiring process.
              Paragraph 4, line 1, of the same page says that it is also the responsibility of the
              program office to ensure that any personnel action taken results in the organization
              remaining within its full-time equivalent ceiling and that there is appropriate
              funding to facilitate the personnel action.

          •   Third page of document (an unnumbered page), paragraph 5, states that certification
              documents should be authorized and maintained by the budget office of the hiring
              program office to verify that proper consideration has been given to all pertinent
              management-related information necessary to reach sound hiring decisions.

          •   Fourth page of document (page numbered 2), paragraph 4, states that senior
              management approval is required to fill general schedule14 and 15 positions
              externally. To maintain oversight of the high-grade reductions, the Deputy
              Secretary will grant approval/disapproval.




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