oversight

HUD Can Improve Its Oversight of ARRA Obligation and Expenditure Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-05-20.

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

                                                                Issue Date
                                                                         May 20, 2011
                                                                
                                                                Audit Report Number
                                                                        2011-FO-0005




TO:        Douglas A. Criscitello, Chief Financial Officer, F

                 //s//
FROM:      Thomas R. McEnanly, Director, Financial Audits Division, GAF


SUBJECT: HUD Can Improve Its Oversight of ARRA Obligation and Expenditure
           Requirements


                                   HIGHLIGHTS

 What We Audited and Why

            We performed an audit of the U.S. Department of Housing and Urban
            Development’s (HUD) compliance with obligation deadlines and progress toward
            meeting expenditure requirements related to eight programs funded by the
            American Recovery and Reinvestment Act of 2009 (ARRA). These HUD
            programs received $13.61 billion in ARRA funding. The ARRA funds were
            intended to stimulate the economy, and their commitment, obligation, and
            expenditure should be consistent with ARRA and other applicable law.

            The objectives of our review were to determine whether HUD obligated ARRA
            funds in accordance with applicable deadlines and to assess HUD’s oversight of
            grantees’ expenditure of ARRA funds and HUD’s internal requirements. This
            audit was conducted in conjuction with our annual audit of HUD’s financial
            statements.
    What We Found
                HUD can improve its oversight of ARRA obligation and expenditure
                requirements. Our review determined that $1.6 million in Public Housing Capital
                Fund and Native American Housing Block Grant funds, recaptured after July 21,
                2010, must be returned to the U.S. Treasury under the provisions of the Pay it
                Back Act.1 Additionally, we found that ARRA monitoring and oversight could be
                better documented in HUD’s funds control plans.

    What We Recommend


                We recommend that the Office of the Chief Financial Officer ensure that the $1.6
                million in recaptured funds is returned to the U.S. Treasury as required by the Pay
                it Back Act. We also recommend that the Office of the Chief Financial Officer
                establish and implement procedures to ensure the accuracy and completeness of
                ARRA funds control plans.

                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 HUD with a copy of the draft report on March 25, 2011 and
                requested written comments by April 25, 2011. We received the written response
                on April 25, 2011. HUD generally agreed with the audit recommendation.

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




1
  Public Law 111-203, Dodd-Frank Wall Street Reform and Consumer Protection Act, Title XIII - Pay It Back Act,
Section 1306, Repayment of Unobligated ARRA Funds, and Section 1613, Withdrawal or Recapture of Unobligated
Funds, amend Public Law 111-5, 123 Stat.305, American Recovery and Reinvestment Act of 2009, to require the
return of unobligated and recaptured funds and repayment of those funds to the U.S. Treasury.


                                                      2
                           TABLE OF CONTENTS

Background and Objectives                                                            4

Results of Audit
      Finding 1: HUD Obligated Nearly All ARRA Funds Within Time Limits but          6
      Must Return $1.6 Million in Deobligated Funds to the U.S. Treasury, and ARRA
      Expenditures Were on Target To Meet Deadlines
      Finding 2: HUD’s ARRA Funds Controls Plans Had Weaknesses                      13

Scope and Methodology                                                                15

Internal Controls                                                                    17

Appendix
   A. Schedule of Questioned Costs                                                   18
   B. Auditee Comments and OIG’s Evaluation                                          19




                                            3
                     BACKGROUND AND OBJECTIVES

Public Law 111-005, the American Recovery and Reinvestment Act of 2009 (ARRA), was
signed into law on February 17, 2009, and was intended to provide supplemental appropriations
for job preservation and creation, infrastructure investment, energy efficiency and science,
assistance to the unemployed, and State and local fiscal stabilization for the fiscal year ending
September 30, 2009. Below is a brief description of the programs reviewed for compliance with
ARRA obligation and expenditure requirements.

Community Development Fund (Also Known as Community Development Block Grants)
The Community Development Fund consists of the Community Development Block Grant
(CDBG) program and the Neighborhood Stabilization Program (NSP). CDBG provides funds to
local governments for a wide range of activities intended to create suitable living environments,
provide decent affordable housing, and create economic opportunities, primarily for people of
low and moderate income. NSP provides grants for the redevelopment of abandoned and
foreclosed-upon homes. CDBG program recipients must have obligated their funds by
September 30, 2010, and expend 100 percent of their allocations by September 30, 2012. NSP
program recipients must have obligated their funds by February 16, 2010, and expend 50 percent
within two years of the date the funds became available to the grantee for obligation and 100
percent within three years of such date.

Lead Hazard Reduction
The Lead Hazard Reduction program is composed of the Lead-Based Paint Hazard Control grant
program that assists States, Native American tribes, cities, counties/parishes, or other units of
local government in identifying and controlling lead-based paint hazards in privately owned
rental or owner-occupied housing. ARRA provided funding for the following grant programs:
Lead-Based Paint Hazard Control, Lead Hazard Reduction Demonstration, Healthy Homes
Demonstration, and Healthy Homes Technical Studies. Grantees must obligate the funds by
September 30, 2011, and expend at least 50 percent of such funds within two years of the date on
which funds became available for obligation and 100 percent within three years of such date.

Homelessness Prevention Fund (Also Known as Emergency Shelter Grants)
The Homelessness Prevention Fund provides financial assistance and services to prevent
individuals and families from becoming homeless and help those that are experiencing
homelessness to be quickly rehoused and stabilized. The funds will provide for assistance to
include short-term or medium-term rental assistance, housing relocation, and stabilization
services. Grantees must obligate the funds by September 30, 2011, and expend at least 60
percent of funds within two years of the date that funds became available for obligation and 100
percent within three years of such date.

HOME Investment Partnerships Program (Also Known as the Tax Credit Assistance
Program)
The Tax Credit Assistance Program (TCAP) provides grants for capital investments in low-
income housing tax credit projects. Funds are provided to the housing credit agencies in each
State by a formula-based allocation. The housing credit agencies in each State will distribute


                                                4
these funds competitively according to their qualified allocation plan. Grantees must obligate the
funds by September 30, 2011, and expend 75 percent of the funds within two years of ARRA
enactment and 100 percent of the funds within three years of ARRA enactment.

Project-Based Rental Assistance
The Section 8 program provides rental subsidies for eligible tenant families residing in newly
constructed, rehabilitated, and existing rental and cooperative apartment projects. This program
was awarded $2 billion to fund contract renewals under the Section 8 program. HUD will use
the money provided to fund contract renewals on a full 12-month cycle to owners of multifamily
rental housing. More than 6,000 existing contracts with more than 450,000 assisted families will
receive additional funding as a result of ARRA. Obligation and expenditure requirements do not
apply to the Project Based Rental Assistance program.

Public Housing Capital Fund
The Public Housing Capital Fund provides funds for the capital and management activities of
public housing agencies as authorized under Section 9 of the U.S. Housing Act of 1937. These
activities include the modernization and development of public housing. Funds from this
program cannot be used for operations or rental assistance. ARRA requires that public housing
agencies give priority to capital projects that can award contracts based on bids within 120 days
from the date the funds are made available to the agencies. Grantees must have obligated the
funds provided under the competitive method by September 30, 2009, and funds under the
formula method by March 19, 2009. Grantees must have expended at least 60 percent of the
funds within two years of the date on which funds became available for obligation and 100
percent within three years of such date.

Green Retrofit Program
Grants and loans will be made available through HUD’s Office of Affordable Housing
Preservation for eligible property owners to make energy and green retrofit investments in their
property. There are two program elements: project grants and direct loans. The grant amount
will be up to $15,000 per unit, based upon HUD review and owner acceptance of an assessment
of property needs and opportunities for energy and green retrofits. Grantees must have obligated
funds by September 30, 2010, and expended funds within two years from the time they received
the funds.

Native American Housing Block Grants
The Native American Housing Block Grant program funds new construction, acquisition,
rehabilitation, and infrastructure development activities. Funds can also be used to leverage
private-sector financing for new construction, renovation, and energy retrofit investments. HUD
must have obligated the funds provided under the formula method by March 19, 2009, and funds
under the competitive method by September 30, 2009. Grantees must have obligated 100
percent of such funds within 1 year of the date funds are made available to the recipient.
Grantees must have expended at least 50 percent of such funds within two years of the date on
which funds became available for obligation and 100 percent within three years of such date.

This audit was conducted as a component of our annual consolidated financial statement audit for fiscal
year 2010. Our objectives were to review ARRA funding and determine whether HUD met ARRA’s
requirements for obligations and recaptures, and that expenditures were on target to meet deadlines.


                                                    5
                                RESULTS OF AUDIT

Finding 1: HUD Obligated Nearly All ARRA Funds Within Time
Limits but Must Return $1.6 Million in Deobligated Funds to the U.S.
Treasury, and ARRA Expenditures Were on Track To Meet Deadlines

HUD grantees met ARRA’s specific obligation deadlines for six of the eight ARRA programs
reviewed, with nearly $1.6 million of the $13.61 billion remaining unobligated and ineligible for
reobligation. While ARRA originally allowed for the reallocation of deobligated funds,
Congress amended ARRA in the Pay It Back Act so that any ARRA funds recaptured or
deobligated after, July 21, 2010, the enactment date of the Act, were to be returned to the U.S.
Treasury. As a result of the amendment to ARRA, the $1.6 million is ineligible for reobligation
and must be returned to the U.S. Treasury. ARRA also had expenditure deadlines which, as of
July 2010, HUD was on target to meet.




 HUD Obligated Its ARRA
 Funding Within the Required
 Time Limits

               Our review of HUD’s ARRA program funding found that its obligation deadlines
               had been met for all program activities. The following table shows the programs
               reviewed, the amount appropriated, obligation deadlines, and the obligation
               requirement status. The differences in appropriated amounts from the amounts
               obligated were due mostly to transfers/set-asides to ARRA-specified administrative
               offsets for administrative or information technology costs as shown in the table
               below.




                                                6
                                                                                             AOM,3 WCF,4           Difference
                                       ARRA            Met ARRA                              and personnel
   ARRA                                                                    As of July
                 Appropriated         obligation       obligation                            compensation
program area                                                               obligations
                                      deadline2       requirement                              & benefits

Community        $3,000,000,000      9/30/20105      Yes                $2,969,999,881      $30,000,000         ($119*)
Development                          2/16/20106
Fund
Lead Hazard      $100,000,000        9/30/2011       Yes                 $99,500,000        $500,000            ($0)
Reduction
Homelessness     $1,500,000,000      9/30/2011       Yes                $1,492,500,000      $7,500,000          ($0)
Prevention
Fund
HOME             $2,250,000,000      9/30/2011       Yes                 $2,250,000,000     $0                  ($0)
Investment
Partnerships
Program
Project-Based    $2,000,000,000      9/30/2010        Yes               $2,000,000,000      $0                  ($0)
Rental
Assistance
Public           $4,000,000,000      3/19/2009-F     Yes                $3,977,579,023      $22,420,997          ($20*)
Housing                              9/30/2009-C
Capital Fund
Green Retrofit   $250,000,000        9/30/2010       Yes                $133,165,177        $2,500,000          ($114,334,823)
Program
Native           $510,000,000        3/19/2009-      Yes                $506,076,442        $2,550,000          ($1,373,558)
American                             F7
Housing                              9/30/2009-C
Block Grant
      * Immaterial difference due to rounding
      F – formula method, C – competitive method

                       In our analysis of ARRA obligation data, we found significant variances in two
                       programs: the Green Retrofit Program and the Native American Housing Block
                       Grant program.

                       The unobligated balance of Green Retrofit Program ARRA funds of more than
                       $114.3 million as of July 31, 2010, was determined not to be an exception as the
                       obligation deadline had not passed. ARRA required that the Green Retrofit
                       Program funds be obligated by September 30, 2010. Our follow-up review found
                       that as of September 30, 2010, the Green Retrofit Program had obligated all of its
                       funds.
      2
        Funds deobligated after July 21, 2010, are subject to the recapture requirements of the Pay It Back Act.
      3
        Administration, operations, and management (ARRA-allowed program support)
      4
        Working capital fund (ARRA information technology program support)
      5
        Community Development Block Grant (CDBG)
      6
        Neighborhood Stabilization Program 2 (NSP2)
      7
        HUD obligation dates to program. The actual obligation date for grantees will vary, but ARRA requires obligation
      of 100 percent of funds within 1 year of the date funds are made available to the recipient.


                                                              7
          The ARRA Native American Housing Block Grant had more than $1.37 million in
          unobligated funds as of July 31, 2010. In accordance with ARRA requirements,
          these funds must have been obligated by March 19, 2009. The unobligated balance
          was ARRA funds that had been deobligated during fiscal year 2010. However, as a
          result of the Pay It Back Act, $59,365 of the balance of the recaptured and
          deobligated funds was determined to be ineligible for reobligation because the funds
          were recaptured and deobligated after July 21, 2010. As of September 30, 2010,
          HUD had deobligated more than $1.65 million in Native American Housing Block
          Grant funds during the fiscal year.

          After considering those offsets and deobligations, our review found that HUD met
          the obligation deadlines.



HUD Needs To Return $1.6
Million to the U.S. Treasury in
Accordance With the Pay It
Back Act

          Our review of HUD’s ARRA funding process found exceptions to the full
          obligation of ARRA appropriations in four program areas: Lead Hazard
          Reduction, HOME Investment Partnerships Program, Public Housing Capital
          Fund, and Native American Housing Block Grant. HUD was able to provide
          adequate documentation to justify and support the amounts and timing of the
          amounts obligated, deobligations, and subsequent reobligations for all programs.
          However, $59,365 in Native American Housing Block Grant ARRA funds and
          more than $1.5 million in Public Housing Capital Fund funds, for a total of nearly
          $1.6 million, must be returned to the U.S. Treasury in accordance with the Pay It
          Back Act.

          Before the enactment of Title XIII, Pay It Back Act, of the Dodd-Frank Act on
          July 21, 2010, the requirements of ARRA contained provisions that allowed HUD
          to recapture and reallocate program ARRA funds. Specifically, the Lead Hazard
          Reduction program, Homelessness Prevention Fund, HOME Investment
          Partnerships Program, Public Housing Capital Fund program, and Native
          American Housing Block Grants contained recapture and/or reallocation
          provisions. The Pay It Back Act amended ARRA to require that funds rejected by
          the States be rescinded and deposited into the General Fund of the U.S. Treasury.
          Additionally, withdrawn or recaptured unobligated funds are to be returned to the
          U.S. Treasury by December 31, 2012. The return of the ARRA funds is for the
          sole purpose of deficit reduction.

          In accordance with the Pay It Back Act, HUD must return recaptured or
          deobligated ARRA funds that were unobligated as of July 21, 2010. Therefore,



                                           8
           the recapture and reallocation provisions of the eight programs reviewed were not
           applicable to the balance of unobligated funds after July 21, 2010. HUD’s
           monitoring efforts and analysis of ARRA funds and the Office of Inspector
           General’s (OIG) audit findings resulted in recaptured ARRA funds. Funds that
           were recaptured and not reallocated before the enactment of the Pay It Back Act
           were identified for return to the U.S. Treasury as indicated in the table below.


                Fiscal Year 2010 ARRA program funds deobligation review
                                                 Recapture or
              ARRA program area                                            Deobligation date
                                                    return
   Native American Housing Block Grant -1     $38,484                      7/28/2010
   Native American Housing Block Grant -2     $20,881                      9/17/2010
        Native American Housing Block Grant $59,365
                                        Total
   Public Housing Capital Fund-1              $972,748                     8/13/2010
   Public Housing Capital Fund-2              $419,430                     8/13/2010
   Public Housing Capital Fund-3              $114,872                     7/26/2010
   Public Housing Capital Fund-4              $33,016                      8/18/2010
           Public Housing Capital Fund Total $1,540,066


           As a result, funds are to be returned for the sole purpose of deficit reduction and,
           therefore, are ineligible for reallocation to other ARRA programs. HUD indicated
           that it intended to return the funds at the end of the year. However, we
           recommend that HUD return the $1.6 million within 60 days from when the report
           is issued to ensure that the U.S. Department of the Treasury receives the funds
           promptly as required by the Pay It Back Act.


ARRA Programs Were on
Target To Meet Expenditure
Deadlines


           We reviewed the ARRA expenditure rates as of July 31, 2010. Our review
           consisted of identifying the ARRA obligation dates for each program under
           review and the related expenditure requirements. Further, we reviewed the
           amount of obligations and expenditures as of July 31, 2010, to determine the
           percentage of funds that had been obligated and expended. Based upon our
           preliminary analysis, we had concerns regarding the expenditure rates for the
           Homelessness Prevention and Rapid Re-Housing Program; Community
           Development Fund, which includes CDBG and NSP; HOME Investment
           Partnerships Program, also known as TCAP; and Green Retrofit Program.


                                            9
                 Specifically, our analysis of the Homelessness Prevention and Rapid Re-Housing
                 Program found that as of July 31, 2010, approximately 11 months into the 24-
                 month obligation period, grantees had expended only 24 percent of the obligated
                 funds when they should have expended approximately 27 percent. HUD staff
                 members indicated that they were monitoring the program’s expenditure rate and
                 were confident that the three percent gap could be made up and the program
                 would meet its expenditure deadline.

                 We also reviewed the expenditure rates for CDBG and NSP. As of July 31, 2010,
                 grantees should have expended approximately 21 percent of their funds.
                 However, grantees had only expended 13 percent of their obligated funds. We
                 met with the program office to discuss the ARRA requirements and results of our
                 review. Specifically, we sought clarification for the expenditure requirements as
                 the Act does not mention specific expenditure rates for CDBG. As of July 31,
                 2010, CDBG had an expenditure rate of 36 percent, and NSP had an expenditure
                 rate of 0.85 percent. The expenditure rate for NSP was low in comparison to
                 CDBG; however, the funds for this program were not obligated until February
                 2010. Additionally, the program office responded to our concerns and provided
                 the status of funds report, which showed that the expenditure amounts had
                 increased as of September 2010 for both CDBG and NSP. Additionally, program
                 staff indicated that they were ahead on their projects.

                 For the HOME Investment Partnerships Program, our analysis found that as of
                 July 31, 2010, grantees should have expended approximately 54 percent for the
                 two year requirement and 48 percent for the three year requirement. However,
                 grantees had only expended 32 percent of their obligated funds. Program staff
                 stated that because the TCAP grantees did not sign grant agreements, for the most
                 part, until July and August 2009, the expenditure rate was lower than HUD would
                 like. However, program staff members stated that they were taking appropriate
                 steps to increase the expenditures.

                 The Green Retrofit Program ARRA requirements state that grantees must expend
                 the funds within two years from the time they receive the funds. Using the
                 earliest owner/grantee reimbursement request date of October 26, 2009, we
                 determined that as of July 31, 2010, grantees should have expended
                 approximately 37.5 percent of their funds. However, grantees had only expended
                 seven percent of their funds. Program staff members stated that the program was
                 nearing its obligation deadline and were aware of the expenditure deadlines as
                 well. HUD indicated that the program was moving forward and had implemented
                 financial incentives8 for grantees that complete the scope of work in a timely
                 manner and within budget constraints.



8
 The Green Retrofit Program Multifamily Housing Plan provides the following Owner Incentives that are allowed
under the Recovery Act: pre-development, energy efficiency, targeted job creation and incentive performance fee.


                                                       10
                Based on our review and subsequent supporting documentation received on
                expenditure rates as of September 30, 2010, we determined that the Homelessness
                Prevention and Rapid Re-Housing Program, CDBG program, HOME Investment
                Partnerships Program, and Green Retrofit Program were reasonably on target for
                meeting the rates of expenditures according to ARRA. HUD program staff
                provided a series of reports which supported these statements and documented
                that HUD had established goals and targets and that the above programs were
                within an acceptable range.


                                   ARRA expenditure analysis
ARRA program area             Appropriated     As of July 2010   As of July    Expenditure
                                               expenditures      2010          requirements
                                                                 expenditure   (from date of
                                                                 percentage    obligation unless
                                                                               otherwise noted)
Community Development         $3,000,000,000   $371,425,060      NSP-0.85%     NSP-50% within 2
Fund                                                             CDBG-36%      years of 2/16/12,
                                                                               100% within 3
                                                                               years of 2/16/13
                                                                               CDBG-100% by
                                                                               9/30/12

Lead Hazard Reduction         $100,000,000     $24,614,271       25%           50% within 2 years
                                                                               of date, 100%
                                                                               within 3 years of
                                                                               date
Homelessness Prevention       $1,500,000,000   $359,039,020      24%           60% within 2 years,
Fund                                                                           100% within 3
                                                                               years of date
HOME Investment               $2,250,000,000   $723,871,373      32%           75% within 2 years
Partnerships Program                                                           of enactment of
                                                                               ARRA,
                                                                               100% within 3
                                                                               years of enactment
                                                                               of ARRA
Project-Based Rental          $2,000,000,000   $1,975,932,721    98%           None
Assistance
Public Housing Capital Fund   $4,000,000,000   $1,676,522,375    42%           60% within 2 years,
                                                                               100% within 3
                                                                               years of such date
Green Retrofit Program        $250,000,000     $9,752,420        7%            100% within 2
                                                                               years from the date
                                                                               grantee received
                                                                               funds
Native American Housing       $510,000,000     $249,348,433      49%           50% within 2 years,
Block Grant                                                                    100% within 3
                                                                               years of date



                                               11
Conclusion


             Our review found that HUD complied with the ARRA obligation requirements.

             While nearly all of HUD’s ARRA programs were on track to meet their expenditure
             requirements, we requested documentation for three programs to ensure that they
             were on target for meeting their deadlines for expenditures as required by ARRA.

             Additionally, we noted that nearly $1.6 million must be returned to the U.S.
             Treasury in accordance with the Pay It Back Act. Specifically, Native American
             Housing Block Grant ARRA funds of $59,365 and Public Housing Capital Fund
             funds of more than $1.5 million. HUD indicated that it intended to return the
             funds at the end of the year.


Recommendations


             We recommend that the Office of the Chief Financial Officer

             1A     Within 60 days of the date this report is issued, return to the U.S. Treasury
                    $1,599,432 in deobligated ARRA funds in accordance the provisions of
                    the Pay It Back Act.




                                              12
Finding 2: HUD’s ARRA Funds Control Plans Had Weaknesses
HUD’s ARRA funds control plans did not always include details to enable HUD staff to monitor,
properly account for, and process ARRA funding and reimbursement requests. This weakness
occurred because HUD did not ensure that adequate funds control plans existed for each program
office that received ARRA funds. Without complete funds control plans, HUD cannot determine
and affix responsibility should obligations or expenditures be incurred in violation of the Anti-
Deficiency Act9.



    HUD Needs To Ensure
    Completeness and Accuracy of
    ARRA Funds Control Plans


                  In our report, 2011-FO 0003, issued on November 15, 2010, Additional Details
                  To Supplement Our Report on HUD’s Fiscal Years 2010 and 2009 Financial
                  Statements, we reported as a significant deficiency that HUD needed to improve
                  administrative controls over funds including ARRA programs. In that report, we
                  found that ARRA funds control plans did not always include information such as
                  funding codes, funding amounts, or the obligation and expenditure amounts.

                  Our review consisted of obtaining the funds control plans for the programs that
                  received ARRA funding to determine (1) the funding amounts, (2) obligation and
                  disbursement time limits for HUD and the grantees, (3) HUD systems used to
                  account for and allow the authorized disbursement of ARRA funds, (4) provisions
                  for the payment of administrative costs including appropriation codes, (5) point of
                  obligation documentation, (6) payment requests, and (7) validation procedures. The
                  ARRA funds control plans did not always include details to enable HUD staff to
                  monitor, properly account for, and process ARRA funding and reimbursement
                  requests. We also reviewed the funds control plan for the Green Retrofit loan
                  program and found that the funds control plan did not identify the Program
                  Accounting System10 program code for U.S. Treasury borrowings and interest.
                  Also, the funds control plan did not include the plan and procedures for obligating
                  and disbursing funds related to U.S. Treasury interest payments.

                  Specifically, we reviewed 15 ARRA-related funds control plans and found that 14
                  did not include funding appropriation codes, funding amounts, obligation and
                  expenditure time limit details, and administrative funding provisions. HUD

9
  U.S. Code, Title 31 Section 1518 - adverse personnel actions; Section 1519 - criminal penalty provides adverse
personnel actions and criminal penalties for any officer or employee that violates the requirements of expenditures
and obligations.
10
   Program Accounting System (PAS) provides fund accountability and an integrated subsidiary for the
Department's grant, subsidy, and loan programs. PAS links to HUDCAPS for general ledger processing, Standard
General Ledger (SGL) transaction processing, and for summarized accounting activity.


                                                         13
             Handbook 1830.2, REV-5, states that all allotment holders shall be required to
             prepare a funds control plan describing the administrative control of funds allotted
             to them. Also, each allotment holder is ultimately responsible for the preparation,
             submission, and implementation of a funds control plan that provides for an
             effective administrative control of funds allotted to it. Further, funds control
             plans must contain detailed information for each program line item or other
             activity included in the allotment, broken down to the lowest level of any
             corresponding assignment of funds.

             The process by which an agency ensures that its obligations and expenditures stay
             within authorized budget limits and otherwise comply with the Anti-Deficiency
             Act is referred to as “administrative funds control.” The funds control plans for
             the ARRA programs did not describe the administrative control of funds allotted
             to the programs. Without complete funds control plans, the Chief Financial
             Officer cannot determine and affix responsibility in instances in which obligations
             or expenditures have been incurred in violation of the Anti-Deficiency Act. HUD
             program staff members indicated that there was a rush to have the funds control
             plans completed along with the front-end risk assessment, and, therefore, they
             may not have been as detailed as desired. However, they contended that the funds
             control plans referenced ARRA, which included all pertinent information.



Conclusion


             ARRA funds control plans did not always include details to enable HUD staff to
             monitor, properly account for, and process ARRA funding and reimbursement
             requests. Specifically, the funds control plans did not always include information
             such as funding appropriation codes, funding amounts, and obligation and
             expenditure time limit details. Additionally, the funds control plans for the Green
             Retrofit loan program did not include the processes, procedures, and program
             code for obligations and disbursements made to the U.S. Treasury for interest
             payments.


Recommendations



             In an earlier report, we recommended that HUD establish and implement
             procedures to ensure accuracy and completeness of ARRA funds control plans.
             We have no further recommendations.




                                              14
                             SCOPE AND METHODOLOGY

ARRA provided for supplemental appropriations for job preservation and creation, infrastructure
investment, energy efficiency and science, assistance to the unemployed, and State and local
fiscal stabilization for the fiscal year ending September 30, 2009. Each program area had a
slightly different compliance timeframe, which we considered in planning the review. This
review’s intent was to determine compliance with obligation and expenditure requirements
contained in ARRA as of July 31, 2010. In addition, we reviewed HUD’s progress in its
obligation and expenditure of funds as of July 31, 2010. Further, we reviewed the timing of
funds recaptured to determine compliance with the return of deobligated funds to the U.S.
Treasury under the Pay It Back Act. We also reviewed the most recent obligation and
expenditure rates and performed a review of the Green Retrofit Program obligation data through
the end of September 2010.

We obtained the funds control plans for the programs that received ARRA funding to determine
(1) the funding amounts, (2) obligation/disbursement time limits for HUD and the grantees, (3)
HUD systems used to account for and allow the authorized disbursement of ARRA funds, (4)
provisions for the payment of administrative costs including appropriation codes, (5) point of
obligation documentation, and (6) payment request and validation procedures.

We obtained the appropriated, obligated, unobligated, percent unobligated and disbursed
amounts for the programs that received ARRA funding to determine whether HUD met legal and
administrative requirements and obligated and expended ARRA funding according to ARRA
requirements. We requested from the Office of the Chief Financial Officer all HUDCAPS11
transaction-level data for incurred obligations for the review of eight major ARRA program
appropriations (except Federal Housing Administration (FHA) and Government National
Mortgage Association (GNMA)) for the period covering March 1, 2009, through March 31,
2010, and all HUDCAPS transaction-level expenditure data (Standard General Ledger Account
6100) for all appropriations (except FHA and GNMA) for the period covering March 1, 2009,
through March 31, 2010. Using the number of ARRA disbursements from March 1, 2009, to
March 31, 2010, as a universe, we determined that there were a total of 85,245 detail
disbursement transactions with a total amount of more than $3.56 billion disbursed. We used a
90 percent confidence level and randomly selected 10 sample items from eight major ARRA
programs and 10 sample items from one catch-all program categorized as “other.” All of the
transactions that resulted under “other” were personnel- and compensation-related transactions.
We obtained this information to determine whether HUD disbursed ARRA funding according to
ARRA requirements. Additionally, we reviewed the supporting documentation to verify that
disbursements were valid, timely, and for eligible activities as defined by ARRA requirements.
We believe that our methodology for obtaining and reviewing the eight major ARRA program
transactions provides an adequate basis for the conclusions reached in this report.

We obtained the most recent obligation date and the ARRA expenditure requirements for eight
major ARRA programs under review to determine the percentage of funds that had been

11
     HUD’s Central Accounting Program System


                                               15
expended. We relied upon the obligation and expenditure data as of July 31, 2010 obtained
from HUDCAPS for our analysis.

We relied upon the information from the HUD system. We consider this information to be
reliable as we reconcile the detail transaction level in HUDCAPS to the Hyperion12 financial
reporting. We obtained supporting documentation of recaptured funds as of July 31, 2010, to
determine whether the funds should be returned to the U.S. Treasury in accordance with the Pay
It Back Act enacted on July 21, 2010. Using the supporting documentation, we identified which
of the eight major ARRA programs under review had funds recaptured after July 21, 2010.

We also interviewed HUD’s staff from the Office of Strategic Planning and Management, Office
of Community Planning Development, Ft. Worth Financial Accounting Center, Appropriations
Law, and the Office of Affordable Housing and Preservation Programs.

We performed our audit work from May 2010 through July 2010 at the Agency’s offices located
at 451 7th Street SW, Washington, D.C. and 801 Cherry Street, Fort Worth, TX. The audit
covered the period of March 31, 2010, through July 31, 2010, but was expanded when necessary
to include other periods.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




12
     HUD Consolidated Financial Statement System (A39), Hyperion


                                                      16
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


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

                     Documentation of administrative controls implemented to monitor ARRA
                      funds (finding 2).

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.


 Significant Deficiency


               Based on our review, we believe that the following item is a significant deficiency:

                  Administrative control documentation did not comply with requirements related
                   to fully describing the controls designed and implemented.




                                                 17
                                       APPENDIX

Appendix A

                SCHEDULE OF QUESTIONED COSTS

 Recommendation          Ineligible 1/
        number
             1A               $1.6 M
              =


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations. In this instance, implementation of the recommendation is
     necessary for compliance with ARRA requirements and the Pay It Back Act.




                                            18
Appendix B
     AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments

Comment 1




Comment 1




Comment 2




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 3




                         20
                         OIG Evaluation of Auditee Comments

Comment 1   HUD concurred with our recommendation but requested that we note in our report
            that HUD plans to complete the process to return the funds to the U.S. Treasury
            within 60 days of the issuance of the final report. We agreed to modify the report
            to acknowledge that the funds will be returned within 60 days.

Comment 2   HUD generally concurred with our finding but requested that the finding be
            removed from this report because it is a duplicate finding from an audit report
            previously issued. OIG agreed to modify the report to acknowledge the previous
            recommendation and that no further recommendations will be made. However,
            OIG believes that the details of the Finding are necessary to ensure proper
            understanding of the conditions of the finding and its relation to the obligation
            and expenditure of ARRA funds.

Comment 3   HUD provided an Attachment with editorial suggestions for the audit report. OIG
            substantially agreed with nearly all the editorial comments and made the
            suggested changes.




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