Evaluation of the Final Front-End Risk Assessment for the Native American Housing Block Grant Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-10-27.

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

                                                     U.S. Department of Housing and Urban Development
                                                                   Office of Inspector General
                                                                                                Region IX
                                                                        611 West Sixth Street, Suite 1160
                                                                      Los Angeles, California 90017-3101
                                                                                    Voice (213) 894-8016
                                                                                     Fax (213) 894-8115

                                                                 Issue Date

                                                                        October 26, 2009
                                                                 Audit Report Number


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

FROM:                       Joan S. Hobbs
                            Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT:                    Evaluation of the Final Front-End Risk Assessment for the Native
                            American Housing Block Grant Program


We reviewed the Office of Native American Programs’ (ONAP) Front-End Risk Assessment
(FERA) for the American Recovery and Reinvestment Act of 2009 (Recovery Act) funding for
Native American Block Grant housing programs as part of our annual audit plan. Our objective
was to determine whether the FERA complied with the Office of Management and Budget’s
(OMB) guidance for implementation of the Recovery Act, the Recovery Act’s streamlined
FERA process, and U.S. Department of Housing and Urban Development (HUD) Handbook
1840.1, Departmental Management Control Program.

                             SCOPE AND METHODOLOGY

Using OMB’s Implementing Guidance for the American Recovery and Reinvestment Act of
2009, the Recovery Act’s streamlined FERA process, and the Departmental Management
Control Program handbook, we evaluated the following factors against the final FERA for
Native American housing programs to ensure that the major objectives were sufficiently

       General control environment (legislative and program/organization structure),
       Risk assessment (program objectives/performance measures and program
       Control activities (coverage by written and other procedures, systems, and funding/funds
       control and organizational checks and balances),
       Information/communication (management attitude and reporting and documentation),
       Monitoring (monitoring and special concerns or impacts).

We also included our determination on compliance and whether the final FERA for Native
American housing programs sufficiently and properly emphasized the major program objectives
of timeliness, clear and measurable objectives, transparency, monitoring, and reporting.

We performed our review work from June through September 2009 at the HUD office in Seattle,
Washington. The review covered the period October 2008 through July 2009. It was
significantly reduced in scope to meet the timeframes of the Recovery Act. Consequently, we
did not conduct the review in accordance with generally accepted government auditing standards
but obtained sufficient evidence to provide a reasonable basis for our conclusions.


The Recovery Act

The Recovery Act became Public Law 111-5 on February 17, 2009. The Recovery Act makes
supplemental appropriations for job preservation and creation, infrastructure investment, energy
efficiency and science, assistance to the unemployed, state and local fiscal stabilization, and
other purposes. The Recovery Act institutes strict obligation and expenditure deadlines with
secretarial recapture and reallocation authority. The HUD Secretary also has waiver authority
and may direct that procurement requirements under state and local laws do not apply.

Division A, Title XII, of the Recovery Act provided for the appropriation of $510 million for
Native American Housing Block Grants. These grants were originally authorized under Title I
of the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA).
HUD awarded $255 million based on its allocation formula, and an additional $242.25 million
was awarded competitively.

The Recovery Act provides two additional grants for Native Americans. It includes NAHASDA
funding for a Native Hawaiian Housing Block Grant of $10.2 million. Also, an additional $10
million in competitive Indian Community Development Block Grants are funded through a set-
aside of the Community Development Block Grant formula in Title 1 of the Housing and
Community Development Act of 1974 (42 U.S.C. (United States Code) 5306).

The NAHASDA Program

HUD’s Indian housing programs and ONAP’s accompanying role have evolved from a rigid
regulatory structure to one with an emphasis on flexibility. Program rules have changed to give
Indian housing authorities more flexibility in administering their housing programs but have not
provided a control structure that ensures accountability for their performance. ONAP has
oversight responsibility to ensure that Indian housing authorities administer HUD-funded Indian
housing programs in compliance with the rules. Under NAHASDA, emphasis is placed on
recognizing the right of Indian self-determination and tribal self-governance, and developing
effective partnerships among Federal and tribal governments, which has led to a greater
emphasis on technical assistance in administering the IHBG program.

The Risk Assessment

Since this was a new program, ONAP was required to perform a front-end risk assessment. The
new funding provided under the Recovery Act also requires an ongoing evaluation and analysis
of risk and continued monitoring to work toward achieving the goals of the legislation. In
applying the Recovery Act’s implementing guidance, HUD will incorporate elements of its
existing FERA process. The streamlined FERA process will build upon the analysis and work
that is underway to implement Recovery Act provisions, maximizing the use of documents and
materials available and supplementing as needed to ensure that internal controls are in place.

OMB’s publication, “Implementing Guidance for the American Recovery and Reinvestment Act
of 2009,” provides an accountability risk framework that shows objectives under phases of the
funding life cycle. It lists the following “accountability objectives” that apply to all agencies and

       Funds are awarded and distributed in a prompt, fair, and reasonable manner;
       The recipients and uses of all funds are transparent to the public, and the public benefit of
       these funds is reported clearly, accurately, and in a timely manner;
       Funds are used for authorized purposes; and instances of fraud, waste, error, and abuse
       are mitigated;
       Projects funded under this Act avoid unnecessary delays and cost overruns; and
       Program goals are achieved, including specific program outcomes and improved results
       on broader economic indicators.

OMB’s guidance also discusses program-specific risks to be identified through the FERA
process. Given the nature and purpose of the Recovery Act, the following objectives require

       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.

                                   RESULTS OF REVIEW

The FERA was generally prepared in accordance with OMB requirements and the Recovery Act
programs are similar to the existing NAHASDA program. We perceive that the overall risks will
also be similar to those under NAHASDA, except for those associated with the additional

The FERA stated that ONAP planned to fill 34 existing vacancies and hire an additional 12
temporary employees to meet the increased reporting requirements and other responsibilities
under the Recovery Act. However, if ONAP hires a significant number of new staff, it will need
to ensure that the new staff members receive sufficient and timely training to be effective in the
administration and oversight of Recovery Act funds.


ONAP’s FERA generally complied with OMB’s guidance for implementation of the Recovery
Act, the Recovery Act’s streamlined FERA process, and HUD Handbook 1840.1, Departmental
Management Control Program.

                                   AUDITEE’S RESPONSE

We provided a discussion draft memorandum report to the auditee on October 16, 2009, the
auditee provided it’s response on October 21, 2009.

The complete text of the auditee’s response, along with our evaluation of that response, can be
found in appendix A of this report.

Appendix A


Ref to OIG Evaluation       Auditee Comments

Comment 1

                        OIG Evaluation of Auditee Comments

Comment 1   We provided a discussion draft audit memorandum report to the auditee on
            October 16, 2009. The auditee provided a written response on October 21, 2009.
            We adjusted the background section for their comments, however, what the
            auditee describes as “active monitoring and aggressive enforcement” remain
            unaudited. We have not assessed how this description correlates to the
            department’s interpretation of Indian self-determination and tribal self-