Evaluation of the Final Front-End Risk Assessment for the Tax Credit Assistance Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-23.

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

                                                          U.S. Department of Housing and Urban Development
                                                                             Wanamaker Building, Suite 1005
                                                                                       100 Penn Square East
                                                                                Philadelphia, PA 19107-3380

                                                                           Regional Inspector General for Audit

                                                                               MEMORANDUM NO:

September 23, 2009

MEMORANDUM FOR:                    Anthony P. Scardino, Acting Deputy Chief Financial Officer, F

FROM:                              John P. Buck, Regional Inspector General for Audit, Philadelphia
                                    Region, 3AGA

SUBJECT:                           Evaluation of the Final Front-End Risk Assessment for the Tax
                                    Credit Assistance Program


In accordance with our responsibility to provide oversight and audits of programs, grants, and
activities funded by the American Recovery and Reinvestment Act of 2009 (Recovery Act) and
administered by the U.S. Department of Housing and Urban Development (HUD), we performed
a limited review of HUD’s assessment of the risk for the Tax Credit Assistance Program
(Program). Our objective was to determine whether HUD’s front-end risk assessment1
(assessment) of the Program complied with Office of Management and Budget (OMB) guidance
for implementing the Recovery Act and applicable HUD requirements.

                                    METHODOLOGY AND SCOPE

To accomplish our objective, we obtained and reviewed

        Public Law 111-5, the American Recovery and Reinvestment Act of 2009, dated
        February 17, 2009.

        OMB Bulletin 09-02, Budget Execution of the American Recovery and Reinvestment Act
        of 2009 Appropriations, dated February 25, 2009.

        OMB Memorandums M-09-10, M-09-15, and M-09-21 regarding initial and updated
        guidance for implementing the Recovery Act.

        HUD Handbook 1840.1, REV-3, Departmental Management Control Program.

  A front-end risk assessment is an assessment of a new or substantially revised program’s or administrative
function’s susceptibility to waste, fraud, abuse, and mismanagement. It should address the mission, goals, and
objectives of the program or function being assessed. In addition, it should contain suggested management controls
for factors determined to have inherent risks to ensure proper delivery and administration.

        Visit the Office of Inspector General’ s World Wide Web site at http://www.hud. gov/offices/oig/
       HUD Notice CPD [community planning and development]-09-03, Implementation of the
       Tax Credit Assistance Program.

       HUD’s Streamlined FERA [front-end risk assessment] Process, dated March 2009.

       HUD’s draft Program assessment, dated March 31, 2009, and HUD’s final Program
       assessment, dated June 26, 2009.

We interviewed management and staff from HUD’s Office of Affordable Housing Programs.
We conducted the audit from April through September 2009 at our offices located in Richmond,
Virginia, and Baltimore, Maryland. This was a limited scope review. Therefore, our work was
not performed in accordance with generally accepted government auditing standards.


On February 17, 2009, President Obama signed the Recovery Act into law. The purpose of the
Recovery Act was to jump-start the nation’s economy, with a primary focus on creating and
saving jobs in the near term. The Recovery Act appropriated $2.25 billion under the HOME
Investment Partnerships Program (HOME) heading for a grant program to provide funds for
capital investments in low-income housing tax credit (LIHTC) projects. HUD awarded Program
grants to state housing credit agencies, including the District of Columbia and the
Commonwealth of Puerto Rico. These 52 agencies are the only eligible grantees for the
Program. Although these funds were appropriated under the HOME heading, Program funds are
not subject to any HOME requirements, other than the environmental review, and can only be
used in LIHTC projects, which is a program administered through the U.S. Department of the
Treasury. HUD awarded Program grants to facilitate development of projects that received or
will receive LIHTC awards between October 1, 2006, and September 30, 2009. Since a major
purpose of these funds is to immediately create new jobs or save jobs at risk of being lost due to
the current economic crisis, the Recovery Act establishes deadlines for the commitment and
expenditure of grant funds and requires state housing credit agencies to give priority to projects
that will be completed by February 16, 2012. The Recovery Act did not include any set-aside
funds for HUD to administer the program.

                                   RESULTS OF REVIEW

HUD’s final assessment of the Program generally complied with OMB guidance for
implementing the Recovery Act and applicable HUD requirements.

OMB Requirements

HUD conducted its assessment in accordance with OMB guidance. OMB’s implementing
guidance for the Recovery Act discusses program-specific risks to be identified through the
assessment process. Given the nature and purpose of the Recovery Act, the guidance requires
that the following factors be emphasized:

       Timeliness. For every program step, it is critical to consider timing and whether the
       actions can be taken within the required timeframe.
       Clear and measurable objectives. All funds will be tracked to show results. It is critical
       to have clear and measurable outputs and outcomes and to have tracking mechanisms in
       Transparency. Information about how all funds are awarded, distributed, and used and
       what results are achieved must be available to the public.
       Monitoring. Workable plans for monitoring programs and related funds must be in place
       and must be carried out.
       Reporting. Identifying and tracking all funding under the Recovery Act is critical and
       must be reported on regularly.

HUD emphasized the factors identified above in the assessment and determined the following:

Timeliness. The timeframes for commitments and expenditures are short–all funds must be
expended within three years (by February 16, 2012). HUD will track all financial data through
its Integrated Disbursement and Information System (IDIS) monthly or more frequently if
needed and inform grantees of their progress through monthly reports of drawdowns and units
completed. State housing credit agencies may not be able to expend all of their Program funds
within the three years, given the additional federal requirements many of these state housing
credit agencies have not dealt with before. To ensure that funds will be expended before the
deadline, the Recovery Act states that housing credit agencies shall give priority to projects that
are expected to be completed within three years of enactment. Projects awarded LIHTC in fiscal
years 2007, 2008, or 2009 are eligible for funding. Not less than 75 percent of Program funds
must be committed by February 2010, 75 percent of the funds must be expended by February
2011, and 100 percent of the funds must be expended by February 2012. CPD Notice 09-03
includes this language. The notice also requires the state agencies to describe the procedures
they will use to ensure that they will commit and expend their Program funds to meet the
deadlines established in the Recovery Act. The state agencies must also specifically describe
how they will redistribute funds to more deserving projects from projects that are not in
compliance with deadlines established in the written agreement between the grantee and project

Clear and measurable objectives. Although no clear outcomes or outputs for the Program have
been defined by OMB, HUD has defined them based on IDIS data collection and the general
goals of the Recovery Act. The Program objectives are clearly defined in the Recovery Act.
HUD has identified the risk measures and how these measures will be evaluated. Outputs and
outcomes will be tracked through IDIS. HUD will collect performance metrics through IDIS for
all project-level Program activities. Although OMB has provided updated guidance for
implementing the Recovery Act, detailed information on the data elements on which recipients
will be required to report to comply with Section 1512 of the Recovery Act is continually being
updated, making it difficult for HUD to effectively design and implement the Program within the
timeframes management set and to disseminate accurate information to grantees in a timely
manner. HUD has published and posted on the Program Web site a series of questions and
answers and two Webcasts. In addition, HUD will continue to publish clarifications and
additional guidance when they are made available. Grantees may not understand the difference

between the Program and Recovery Act requirements that HUD administers versus the LIHTC
program administered through the Internal Revenue Service (IRS). HUD has provided initial
guidance, which will refer grantees to the IRS for compliance issues and questions regarding the
LIHTC program through the life of the Program.

Transparency. The Recovery Act has significant requirements for Program transparency. HUD
has taken action to ensure that information is available to the public. It expects that the
transparency requirements of the Recovery Act, including the requirement to publish both
spending and recipient performance reports, should create accountability among its managers
and grantees. HUD will use its reporting systems in place with IDIS to generate automated
spreadsheets that provide early detection of problem grantees and data entry issues. Each state
agency will be required to report to HUD information similar to the following:

               The total amount of Program funds received;
               The amount of Program funds expended or obligated to projects or activities,
               including unobligated balances; and
               A detailed list of all projects or activities for which Program funds were expended
               or obligated, including
                The name of the project,
                A description of the project,
                An evaluation of the completion status of the project, and
                An estimate of the number of jobs created and the number of jobs retained by
                   the project.

Each state agency must post on its Web site a description of its competitive selection criteria for
awarding Program funds to eligible projects. In addition, the grantee must identify all projects
selected for funding and post the amount of each Program award on its site. State agencies must
submit information about how they are meeting the Recovery Act accountability and
transparency requirements. To implement this requirement, the state agency must make its
project selection process and criteria available to the public and accept comments from the public
for a period of not less than five days. The state agency must submit to HUD its Web site
address set up for this purpose and a description of how it met the five-day comment period. It
must also provide a description of how it plans to ensure that it will remain in compliance with
these accountability and transparency requirements for the duration of the Program grant.

Monitoring. HUD has rated this factor as high risk. HUD does not have a monitoring plan for
compliance with all of the federal requirements of the Recovery Act. It does not have the staff
expertise to monitor Program projects for compliance and eligibility with LIHTC requirements,
making it difficult to discern whether cost reasonableness and other requirements are being met.
The Recovery Act did not provide set-aside funds for HUD to administer the program. HUD
lacks the resources to perform on-site monitoring of Program projects. The IRS administers the
LIHTC program and monitors for compliance with Section 42 of the Internal Revenue Code. If
there are any compliance issues or questions, HUD will refer these to the IRS. HUD will
conduct remote monitoring through IDIS data downloads of project-level data for Program funds
committed and expended by grantees, as well as monitoring funds expended within the required

deadlines imposed by Congress. Remote monitoring will continue through the life of the
program. In addition, HUD will require state agencies, through the grant agreement, to monitor
projects and project owners for compliance with Section 42 of the Internal Revenue Code as well
as all other federal requirements. To the extent possible, HUD will recommend the appropriate
HUD program office to grantees for compliance issues and questions.

Reporting. HUD will use IDIS for reporting. HUD indicated that a number of state agencies
may not be familiar with the requirements of IDIS and how to access the system. It has taken the
necessary steps of identifying the risk and the risk mitigation techniques (what is in place) and
has proposed a solution and a targeted resolution date. HUD has an IDIS training module on its
HOME Web site and will develop, mail, and post operating instructions for new Program
grantees on how to access and use IDIS. HUD is unsure whether IDIS can adequately segregate
Program funds from HOME funds. However, this is only a risk when the Program grantee is the
same as the HOME grantee. HUD has mitigated this risk by separating Program grants from
other grant funds, including HOME, by creating a new source code in its accounting system and
in IDIS. Therefore, grantees of both HUD and Program funds will be able to segregate reporting
for their grants. The target completion date for this objective is September 30, 2009.

IDIS does not collect all of the required data elements of the Recovery Act. Therefore, HUD is
developing a system called the Recovery Act Management and Performance System (RAMPS)
to account for the various programs’ systems not being able to capture all of the required
reporting elements of the Recovery Act. If the interface between IDIS and RAMPS is not
feasible, HUD will continue to require grantees to enter data into IDIS, while exploring other
options to ensure that all required reporting elements are collected. The target completion date
for RAMPS is September 30, 2009.

HUD Requirements

HUD followed the guidance in the streamlined assessment process and HUD Handbook 1840.1,
REV-3, in assessing the risk for the Program. HUD properly assessed the risks and assigned risk
ratings to the 11 factors that the guidance required it to consider. The following chart provides

         Factor                                                            Risk rating
         Legislative                                                       High
         Organizational structure and staffing                             Medium
         Program objectives/performance measures                           Medium
         Program structure/administration                                  Medium
         Coverage by written and other procedures                          High
         Systems                                                           Medium
         Funding/funds control and organizational checks and balances      Medium
         Management attitude                                               Medium
         Reporting and documentation                                       Medium
         Monitoring                                                        High
         Special concerns or impacts                                       Medium

In addition, HUD concluded that there were three inherent risks with the Program: it lacked
formal written policies and procedures, it was participant-administered with no clear oversight,
and it was a special interest program exhibited by Congress and White House officials.


Based on the results of this audit, there are no recommendations.

                                   AUDITEE'S RESPONSE

We provided a discussion draft audit memorandum to the Assistant Chief Financial Officer for
Financial Management and the Director of the Office of Affordable Housing Programs on
September 3, 2009, and discussed it with them at an exit conference on September 9, 2009.
They agreed with the content of the draft audit memorandum and declined to provide written