Issue Date
September 30, 2011
Audit Report Number
2011-FO-0006
TO: David Sidari, Acting Chief Financial Officer, F
//signed//
FROM: Thomas R. McEnanly, Director, Financial Audit Division, GAF
SUBJECT: American Recovery and Reinvestment Act of 2009 Grantees Met Initial
Expenditure Requirements, but HUD Should Return Recaptured Funds to the
U.S. Treasury and Ensure That Grant Closeout Procedures Comply With the
Act
HIGHLIGHTS
What We Audited and Why
We performed an audit of the U.S. Department of Housing and Urban
Development’s (HUD) compliance with initial expenditure requirements related
to six programs funded by the American Recovery and Reinvestment Act of 2009
(ARRA). These HUD programs received more than $8.1 billion of the $13.1
billion in ARRA funding that HUD received. The objectives of our audit were to
determine whether (1) HUD grantees complied with their initial expenditure
requirements; (2) recaptures were properly recorded and controls over the
recapture process existed and complied with the Pay It Back Act; and (3) ARRA
funds control plans were appropriately modified to include Pay It Back Act
requirements. This audit was conducted in combination with our annual audit of
HUD’s financial statements.
What We Found
HUD met the initial expenditure requirements for five of the six ARRA programs
under review. The remaining program was on track to meet its initial expenditure
requirement by its specific expenditure deadline.
However, HUD had $20.85 million in recaptured ARRA funds that must be
returned to the U.S. Treasury’s general fund. Although $20.85 million in ARRA
funds was properly identified for recapture and processed by the Office of the
Chief Financial Officer (OCFO), the funds had not been returned to the U.S.
Treasury. Additionally, $6.2 million in available funds, which were recaptured
before the Pay It Back Act, had not been reallocated and should be sent back to
the U.S. Treasury.
We also found that the grant closeout process for two of the six programs may
have caused noncompliance with ARRA. The Lead Hazard Reduction program
had grant closeout procedures that may have allowed disbursement of funding
after the final expenditure deadline. Additionally, Tax Credit Assistance Program
(TCAP) grantees had procedures that allowed grantees to retain a percentage of
ARRA funds from subgrantees and increased the risk of disbursements made after
the expenditure deadline.
Lastly, we found that funds control plans for the selected programs had not been
modified to include Pay It Back Act requirements, or modifications had not been
reviewed and approved by OCFO.
What We Recommend
We recommend that OCFO immediately return $20.85 million in recaptured
ARRA funds to the U.S. Treasury general fund in accordance with the Pay It
Back Act. Additionally, we recommend that TCAP immediately recapture $6.2
million in deobligated funds to ensure immediate return to the U.S. Treasury.
Further, we recommend that HUD direct the ARRA program offices to review
and, if necessary, revise grant closeout and fund retention policies and procedures
to ensure that funds are expended or recaptured in accordance with ARRA
requirements.
Finally, we recommend that OCFO review all ARRA funds control plans to
determine whether the plans have been appropriately modified and approved to
include Pay It Back Act requirements.
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.
2
Auditee’s Response
We provided the discussion draft report to HUD on September 15, 2011, and
requested a response by September 21, 2011. We received the written response
on September 27, 2011. HUD agreed with finding 1 and generally agreed with
findings 2, 3, and 4. However, HUD disagreed with some of our
recommendations. Specifically, HUD (1) disagreed with the cost classification of
$20.85 million in recommendation 2A, (2) requested the recommendations in
finding 4 be removed because of existing corrective action plans in place related
to the issue, and (3) disagreed with recommendation 3B concerning amending its
grant closeout procedures. The complete text of the auditee’s response, along
with our evaluation of that response, can be found in appendix B of this report.
3
TABLE OF CONTENTS
Background and Objectives 5
Results of Audit
Finding 1: HUD ARRA Programs Were on Target To Meet Initial ARRA 8
Expenditure Requirements
Finding 2: HUD Did Not Return $20 Million in Recaptured Funds to the U.S. 11
Treasury and Recapture an Additional $6.2 Million in Unobligated TCAP Funds
Finding 3: ARRA Grant Closeout Policies and Procedures Were Inconsistent 15
With ARRA Requirements
Finding 4: ARRA Funds Control Plans Did Not Include Pay It Back Act
18
Requirements
Scope and Methodology 21
Internal Controls 23
Follow-up on Prior Audits 24
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 25
B. Auditee Comments and OIG’s Evaluation 26
4
BACKGROUND AND OBJECTIVES
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) 1 was
signed into law 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. This legislation in total provided $13.1
billion to the U.S. Department of Housing and Urban Development (HUD), of which $8.1 billion
was provided for the following six programs: (1) Lead Hazard Reduction program, (2)
Homelessness Prevention and Rapid Re-Housing Program (HPRP), (3) HOME Investment
Partnerships Program (also known as the Tax Credit Assistance Program), (4) Public Housing
Capital Fund formula grants, (5) Public Housing Capital Fund competitive grants, and (6) Native
American Housing Block Grant formula grants. The law included specific expenditure and
reallocation requirements, which varied by program.
ARRA was amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Title
XIII - Pay It Back Act, Sections 1306 and 1613, of Public Law 111-203, enacted on July 21,
2010. The Act amended ARRA to require that funds rejected by the States be rescinded and
deposited into the U.S. Treasury general fund. Additionally, it required that funds withdrawn by
the head of the executive agency for any reason and unobligated funds that are recaptured be
rescinded and returned to the U.S. Treasury general fund by December 31, 2012. The specific
expenditure requirements of the six ARRA programs under review are discussed below.
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 or 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 expend 50 percent of the
funds within 2 years of the date on which funds became available for obligation and 100 percent
within 3 years of such date. The initial expenditure deadline, which varies for each grantee,
occurred on April 10, 2011 through May 11, 2011.
Homelessness Prevention and Rapid Re-Housing Program
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 re-housed and stabilized. The funds will provide for assistance to
include short-term or medium-term rental assistance, housing relocation, and stabilization
services. Grantees must expend 60 percent of the funds within 2 years of the date that funds
became available for obligation and 100 percent within 3 years of such date. The initial
expenditure deadline, which varies for each grantee, is July 5, 2011 through September 29, 2011.
1
Public Law No. 111-5, 123 Stat. 115, 224 (2009)
5
HOME Investment Partnerships Program
The Tax Credit Assistance Program (TCAP) provides grants for capital investments in low-
income housing tax credit projects. Funds are provided by a formula-based allocation to the
housing credit agencies in each State, which will distribute these funds competitively according
to their qualified allocation plan. Grantees must expend 75 percent of the funds within 2 years of
ARRA enactment and 100 percent of the funds within 3 years of ARRA enactment. Therefore,
the initial expenditure deadline for TCAP grantees is February 17, 2011.
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 expend 60 percent of
the funds within 2 years of the date on which funds became available for obligation and 100
percent within 3 years of such date. The initial expenditure deadline for formula grantees is
March 17, 2011. The deadline for competitive grantees, which varies for each grantee, is
September 8, 2011 through September 22, 2012.
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.
Grantees must expend 50 percent of such funds within 2 years of the date on which funds
became available for obligation and 100 percent within 3 years of such date. The initial
expenditure deadline for formula grantees, which varies for each grantee, is April 14, 2011
through January 19, 2012.
HUD is responsible for ensuring proper control over the funding process. This responsibility lies
with the Office of the Chief Financial Officer (OCFO). Below is additional information
regarding OCFO’s responsibility for the administrative control of funds.
Funds Control Plans
HUD’s Administrative Control of Funds Policies and Procedures (CFO Handbook 1830.2, REV-
5) states that Congress has vested overall responsibility for establishing an effective
administrative control of funds process with the Chief Financial Officer (CFO). Each HUD
allotment or suballotment holder is responsible for the proper management and control of all
funds allotted to it. Additionally, all allotment holders must prepare a funds control plan
describing the administrative control of funds allotted to them. The funds control plan shall be
submitted annually for review until the CFO determines that further submission and review are
not needed. Once the CFO has determined that further review of a funds control plan is
unnecessary, submission of the plan for annual review will not be required unless changes in
law, policy, or procedure have occurred that would be inconsistent with the existing plan.
6
The objectives of our audit were to determine whether (1) HUD grantees complied with their
initial expenditure requirements, (2) recaptures were properly recorded and controls over the
recapture process existed and complied with the Pay It Back Act and (3) ARRA funds control
plans were appropriately modified to include Pay It Back Act requirements,.
7
RESULTS OF AUDIT
Finding 1: HUD ARRA Programs Were on Target To Meet the Initial
ARRA Expenditure Requirements
HUD grantees met ARRA’s specific initial expenditure requirements for five of the six ARRA
programs reviewed; however, the remaining program did not reach its initial expenditure
deadline during the period under review. HUD met the initial expenditure requirements for five
of the six programs because the program offices tracked expenditure rates to ensure compliance
with ARRA expenditure requirements. As a result, the six programs were in general compliance
with ARRA expenditure requirements.
HUD ARRA Programs Were on
Target To Meet ARRA
Expenditure Requirements
Our review of HUD’s ARRA program funding found that the initial expenditure
deadline had been reached for five of the six programs reviewed as of May 31,
2011. The remaining program, Public Housing Capital Fund competitive grants,
did not reach its initial expenditure deadline during the review. However, it will
reach its initial expenditure deadline in the fourth quarter of fiscal year 2011. At
the time of our review, the program had substantially 2 met its expenditure
requirement.
The programs reviewed, the amount appropriated, the amount awarded or
committed, the amount expended, the percentage rate of funds expended, and the
expenditure requirements are identified in table I below.
2
“Substantially” is defined as the program’s having met 90 percent or more of the required expenditure rate. The
rate for the Public Housing Capital Fund competitive grant is 93.2 percent (55.6 percent divided by 60 percent).
8
Table I. ARRA expenditures analysis as of May 31, 2011
Amount Expenditure
ARRA Expenditures Expenditure
Appropriated awarded or percentage
program area requirements
committed
60% within 2
years of date,
HPRP 100% within 3
$1,500,000,000 $1,492,500,000 $956,259,774 64.1% years of date
75% within 2
years of
enactment of
TCAP ARRA, 100%
within 3 years
of enactment of
2,250,000,000 2,231,435,074 2,002,702,250 89.7% ARRA
60% within 2
Public Housing
years of date,
Capital Fund -
100% within 3
formula
3,000,000,000 2,979,567,709 2,629,291,133 88.2% years of date
60% within 2
Public Housing
years of date,
Capital Fund -
100% within 3
competitive
1,000,000,000 996,430,707 557,104,310 55.9% years of date
50% within 2
Lead Hazard years of date,
Reduction 100% within 3
program years of date
100,000,000 94,985,690 61,967,161 65.2%
Native 50% within 2
American years of date,
Housing Block 100% within 3
Grant - formula 255,000,000 251,862,255 221,158,509 87.8% years of date
Total $8,105,000,000 $8,046,781,435 $6,428,483,136
The expenditure percentage calculation for five of the six ARRA programs was
performed by dividing the amount of expenditures as of May 31, 2011, by the
amount awarded as of the same date. The expenditure percentage calculation for
the remaining program, TCAP, was based on the amount of funds committed as
of May 31, 2011, because ARRA requires that 75 percent of TCAP funds
awarded be committed within 2 years of the enactment date of ARRA, which was
enacted on February 17, 2009. Therefore, the balance of uncommitted funds was
not used to determine the expenditure rate.
9
Conclusion
HUD met its initial expenditure requirements within the required timeframe for
the programs under review, except for the Public Housing Capital Fund
competitive grant, which had substantially met its requirement.
Recommendations
There is no formal recommendation, and no further action is necessary.
10
Finding 2: HUD Did Not Return $20 Million in Recaptured Funds to
the U.S. Treasury and Recapture an Additional $6.2 Million in
Unobligated TCAP Funds
HUD recaptured $20.85 million in ARRA funds that must be returned to the U.S. Treasury in
accordance with the Pay It Back Act. HUD terminated grant agreements and deobligated or
recaptured funds for grantees that failed to meet performance or expenditure requirements.
However, it had not returned the money because the process for the return of recaptured funds
had not been fully implemented. Additionally, HUD deobligated $6.2 million in TCAP funds
and had no plans to reallocate the funds. The Office of Community Planning and Development
(CPD) program staff deobligated TCAP funds, stated that no plans existed to reallocate and
obligate the funds because there were no projects to re-obligate them to, and expected the funds
to remain unobligated until the fund expired. Without the timely return of recaptured ARRA
funds to the U.S. Treasury, HUD is hindering the spirit of ARRA and the Pay It Back Act and
funds cannot be immediately used toward other government programs.
HUD Must Return $20.85
Million in Recaptured Funds to
the U.S Treasury
HUD must return $20.85 million in recaptures to the general fund of the U.S.
Treasury. Recaptures are current year recoveries of prior year obligations that have
not been outlayed. Five of the six programs reviewed had recaptures that were no
longer available for obligation under the statute but had not been returned to the U.S.
Treasury. The remaining program, HPRP, had no recaptures as of May 31, 2011.
ARRA included specific expenditure and reallocation requirements, which varied
by program. Therefore, each ARRA program had specific expenditure
requirements that had to be met to ensure compliance with the statute. HUD
recaptured funds from grantees that did not comply with expenditure requirements
or failed to meet performance requirements. Therefore, in accordance with Title
XIII, Pay It Back Act, of the Dodd-Frank Act, enacted on July 21, 2010, HUD
must return ARRA funds recaptured after the enactment date to the general fund
of the U.S. Treasury.
In our report, 2011-FO-0005, HUD Can Improve Its Oversight of ARRA Obligation
and Expenditure Requirements, issued May 20, 2011, we recommended that HUD
return $1.6 million in deobligated ARRA funds to the U.S. Treasury in accordance
with the Pay It Back Act. A HUD memorandum, issued to the Office of Inspector
General (OIG) on April 25, 2011, entitled “OIG’s Draft Audit Report HUD Can
Improve Its Oversight of ARRA Obligation and Expenditure Requirements,”
generally concurred with our recommendation and cited recognition of sound cash
management practice for the immediate return of recaptured funds.
11
We reviewed the expenditure and recapture reports for the six ARRA programs as of
May 31, 2011, to determine whether the reports existed and were accurate and
complete. We also determined the recapture rate as a percentage of the appropriated
amount. We identified recaptured funds that must be returned to the U.S. Treasury
as indicated in table II below.
Table II. ARRA recaptures as of May 31, 2011
Recapture
Recaptured
ARRA program area Appropriated percentage 3
HPRP $1,500,000,000 $0 0%
TCAP 2,250,000,000 $0 0%
Public Housing Capital
Fund - formula 3,000,000,000 2,021,326 0.1%
Public Housing Capital
Fund - competitive 1,000,000,000 14,061,781 1.4%
Lead Hazard Reduction
program 100,000,000 4,514,310 4.5%
Native American
Housing Block Grant -
formula 255,000,000 252,880 0.1%
Total $8,105,000,000 $20,850,297 0.3%
The $20.85 million in recaptured funds is less than 1 percent of the total amount of
ARRA funds available for obligation for the six programs under review.
As the purpose of ARRA funds was to stimulate the economy, the return of
recaptured funds in a timely manner would be beneficial to the public. These funds
could be made available toward other government programs or deficit reduction.
Additionally, the immediate return of the recaptured and deobligated funds would
eliminate the need for additional resources to track funds that are no longer eligible
for use by HUD. Further, while the recaptured funds had been identified, prudent
cash management practices would require the efficient return of recaptured funds. It
would also require the identification of funds for need and the recapture of those
funds not needed or ineligible for reallocation in a timely manner.
3
Percentages are rounded
12
CPD Had No Plans To Award
$6.2 Million in Unobligated
TCAP Funds
More than $6.2 million in deobligated TCAP funds remained unobligated, and CPD
had no plans to obligate the funds before the expenditure deadline. Specifically,
$16.4 million in TCAP funds was deobligated in fiscal year 2009, and $10.1 million
was reallocated in March 2011; however, the remaining $6.2 million had not been
reallocated as of May 31, 2011. The funds were recorded in HUD’s accounting
records as unreserved and unobligated funds. In discussions with CPD program
staff, staff members indicated that reallocations were based on performance and
there were no projects in which to reallocate the remaining deobligated funds.
Therefore, CPD program staff members stated that they had no plans to reallocate
and obligate the funds and expected to let funds remain unobligated until the fund
expired.
In accordance with Public Law 111-203, HUD must return recaptured or
deobligated ARRA funds that were unobligated as of July 21, 2010 to the General
Fund of the U.S. Treasury by December 31, 2012. While the TCAP funds were
recaptured before the Pay It Back Act enactment date, the CPD program office
acknowledged that the funds would not be reallocated and obligated. Therefore,
the $6.2 million in TCAP funds should be returned to the U.S. Treasury to
accelerate the use of funds toward other government programs as there is no
purpose in retaining the funds on HUD’s books. The timely return of the funds
will fulfill the spirit for which ARRA was intended which is to benefit the needs
of the public.
Conclusion
HUD recaptured $20.85 million in ARRA funds for failure to meet performance
and expenditure requirements, which must be returned to the U.S. Treasury in
accordance with the Pay It Back Act. Additionally, $6.2 million in deobligated
TCAP funds should be recaptured and returned to the U.S. Treasury.
Recommendations
We recommend that the Office of the Chief Financial Officer
2A. Within 60 days of the date this report is issued, return to the U.S. Treasury
$20,850,297 in recaptured ARRA funds in accordance with the provisions of
the Pay It Back Act.
13
We recommend that the the Office of Community Planning and Development
2B. Recapture $6,223,557 in TCAP funds and return the funds to the U.S.
Treasury.
14
Finding 3: ARRA Grant Closeout Policies and Procedures Were
Inconsistent With ARRA Requirements
The grant closeout process for two of the six programs reviewed was inconsistent with ARRA
expenditure requirements. HUD’s initial guidance to ARRA program offices for the drawdown
of ARRA funds allowed the withholding of funds until after the grant period expired, which was
inconsistent with ARRA expenditure requirements. If the policies and procedures are not
amended, funds may be withheld beyond the expenditure deadline, resulting in HUD’s failure to
comply with ARRA expenditure requirements.
Lead Hazard Must Amend Its
Grant Closeout Policy
The Lead Hazard Reduction program had grant closeout procedures which
allowed for disbursements to be made to grantees after the final expenditure
deadline had passed. In accordance with the Policy Guidance 2000-02 and/or
GTR instructions for the program and any amendments, HUD reserves the right to
withhold five-percent (5%) of the Federal award amount pending the receipt and
approval of a Final Report (with supporting documentation) prepared.
Specifically, the program’s grant closeout policy allowed (1) additional time after
the final expenditure deadline for grantees to submit invoices for approval and (2)
HUD to withhold five percent of the grant award amount for 90 days after the
expenditure deadline. Specifically, the special conditions articles of the Office of
Healthy Homes and Lead Hazard Control ARRA grant and cooperative agreement
terms and conditions allowed (1) the withholding of five percent of ARRA funds
for 90 days after the expenditure deadline and (2) not disbursing the funds to the
grantee until the government technical representative reviewed the grantee’s final
closeout package and approved it. At that time, the remaining five percent of the
funds would be disbursed to the grantee.
ARRA, as amended, contains specific expenditure requirements for recipients of
ARRA funds. The expenditure requirements for each ARRA program require that
a specific percentage of ARRA funds be expended within 2 and 3 years of
obligation or the ARRA enactment date. The grants’ closeout guidance was
based on ARRA expenditure guidance issued by HUD’s Office of General
Counsel that was revoked. Failure to comply with ARRA requirements could
result in funds being recaptured for expenses that had already been incurred,
which could negatively impact ongoing projects or activities of the grantee.
Based on discussions with program staff, we understand that efforts were being
made to amend the policy for distribution to grantees.
15
TCAP Should Direct Grantees
to Follow ARRA Expenditure
Requirements for Grant
Closeout
The grant closeout policy for some TCAP grantees was inconsistent with ARRA
expenditure requirements. In discussions with TCAP program staff, we found
that State housing finance agencies’ grant agreements with subgrantees allowed
the agency to retain a percentage, typically 10 percent, of ARRA funds from
subgrantees until the end of the grant closeout period. However, HUD was
unable to provide specific details to determine the number of agencies retaining
funds and the amount withheld because HUD was unaware that grantees’ were
implementing this practice. Although the extent of the problem is unknown, this
practice increased the risk of housing finance agencies’ performing a drawdown
of the retained funds after the expenditure deadline, which was not consistent with
ARRA expenditure requirements.
ARRA, as amended, requires that all funds be expended within 3 years of
obligation. Each ARRA program has specific expenditure deadline dates before
which the drawdown of all ARRA funds must be completed. The withholding of
funds beyond this date is inconsistent with this requirement. HUD’s failure to
direct housing finance agencies to amend this policy for ARRA funds placed
HUD at risk for noncompliance with ARRA expenditure requirements.
Conclusion
The Office of Healthy Homes and Lead Hazard Control must amend the grant
closeout policy for Lead Hazard Reduction ARRA recipients, and the Office of
Community Planning and Development must direct TCAP ARRA grantees to
ensure that funds are not retained beyond the expenditure deadlines. If the
policies and procedures are not amended to exclude the withholding of funds
beyond the expenditure deadline, ARRA receipients may not receive funds for
eligible costs.
16
Recommendations
We recommend that the Office of Healty Homes and Lead Hazard Control
3A. Direct the Lead Hazard Reduction program to amend its internal grant
closeout policy for consistency with ARRA requirements.
We recommend that the Office of Community Planning and Development
3B. Direct TCAP grantees to amend grant closeout procedures to ensure
compliance with ARRA expenditure requirements.
17
Finding 4: ARRA Funds Control Plans Did Not Include Pay It Back Act
Requirements
The funds control plan for HUD ARRA programs had not been appropriately modified to include
the requirements set forth in the Pay It Back Act. Two of the six programs reviewed had not
modified their funds control plans, and the remaining four programs had not had their modified
plans reviewed and approved by OCFO. The reason why two programs did not modify their
funds control plans is because one indicated that the Pay It Back Act requirements were not
applicable to its program and the second stated that reallocation and recapture requirements were
not originally included in the plan, and therefore, did not need to be updated. The remaining four
plans had been modified but not approved because one had been submitted to OCFO almost 11
months after the passage of the act. For the remaining three, OCFO had provided the program
offices comments and suggested changes and were waiting for the plans to be resubmitted for
final review. The failure to update the funds control plans with Pay It Back Act requirements put
program offices and HUD at risk for noncompliance with the Act. Further, it hinders HUD’s
ability to ensure proper control of funds at all levels and affix responsibility for violations of the
Anti-Deficiency Act 4.
Final Funds Control Plans Did
Not Include Pay It Back Act
Requirements
The funds control plan for HUD’s ARRA programs had not been appropriately
modified to include Pay It Back Act requirements. Specifically, the funds control
plans for the HPRP and TCAP program had not been modified to include Pay It
Back Act requirements. The plans for the remaining four programs, Public
Housing Capital Fund (formula and competitive), Native American Housing
Block Grant (formula), and Lead Hazard Reduction had been updated and
submitted to OCFO for review and approval. However, the Lead Hazard
Reduction funds control plan was not modified until May 10, 2011, almost 10
months after the passage of the Pay It Back Act. Additionally, OCFO had not
completed its review and approved the remaining three plans as of June 30, 2011,
11 months after the passage of the Pay It Back Act. OCFO stated that they had
submitted comments and suggested changes to the plans. They were waiting for
the program offices to finalize and resubmit the plans for final review.
The Federal Managers’ Financial Integrity Act of 1982 requires that internal
accounting and administrative controls of each executive agency be established to
ensure that obligations and costs comply with applicable law. Additionally, the
4
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.
18
fiscal year 2003 Appropriations Act states, “That the Chief Financial Officer shall
establish positive control of and maintain adequate systems of accounting for
appropriations and other available funds as required by 31 U.S.C. [United States
Code] 1514.” Lastly, HUD Handbook 1830.2 requires that the allotment holder
“develop, maintain and enforce adequate funds control plans.” Further, it affixes
responsibility to the CFO to “require and approve up-to-date funds control plans
from all allotment holders.”
OCFO did not complete its review of the revised funds control plans and concur
with the revisions in a timely manner to ensure compliance with Pay It Back Act
requirements. Additionally, program offices had not modified the plans to include
the significant change in the program, as required, and had improperly certified to
OCFO that the previously approved plans were still valid and consistent with
applicable laws, policies, procedures, and current funds control processes.
The failure to update the funds control plans with Pay It Back Act recapture
requirements put the program offices at risk for noncompliance with the Act.
These plans should provide a significant source of guidance on compliance with
ARRA expenditure requirements and other applicable laws and regulations. The
lack of clear policies or procedures for the return of funds to the U.S. Treasury
could result in HUD’s becoming noncompliant with these requirements. Also,
this practice caused HUD to be inconsistent with best practices for cash
management.
Conclusion
Two programs—the HOME Investment Partnerships Program (TCAP), and
HPRP—had not modified their funds control plans, and four programs— the
Native American Housing Block Grant, Lead Hazard Reduction, and Public
Housing Capital Fund (formula and competitive)—had modified the funds control
plans to include Pay It Back Act requirements. However, the Lead Hazard
Reduction program plan was not modified until almost 10 months after the
passage of the act and the other three plans that had been modified had not been
reviewed and approved by OCFO. The failure to update the funds control plans
with Pay It Back Act requirements put the program offices and HUD at risk for
noncompliance with the Act. Further, it hinders the ability of OCFO to properly
monitor, account for, and process ARRA funding and recapture requests and affix
responsibility for any possible Anti-Deficiency Violations.
19
Recommendations
In an earlier report, 2011-FO-0003, Additional Details To Supplement Our Report
On HUD’s Fiscal years 2010 and 2009 Financial Statements, issued on November
15, 2010, we recommended that HUD establish and implement procedures to
ensure accuracy and completeness of ARRA funds control plans. We recommend
the Office of the Chief Financial Officer,
4A. Complete the review of the funds control plan for ARRA Native American
Housing Block Grant formula grants, Lead Hazard Reduction grants,
ARRA Public Housing Capital Fund formula grants, and ARRA Public
Housing Capital Fund competitive grants and concur or nonconcur with
the revisions.
4B. Direct HPRP and the HOME Investment Partnerships Program (also
known as TCAP), to revise their funds control plans to ensure compliance
with ARRA and Pay It Back Act requirements.
4C. Complete the review of all other ARRA funds control plans to determine
whether any remaining program offices have not provided updates to
include Pay It Back Act requirements and direct program offices identified
in this review to revise their funds control plans to ensure compliance with
ARRA and Pay It Back Act requirements.
20
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
specific expenditure requirements, which we considered in planning the review. This review’s
intent was to determine compliance with ARRA expenditure requirements as of May 31, 2011.
In addition, we reviewed HUD’s progress in the expenditure of funds for programs which had
not reached their expenditure deadline as of May 31, 2011. Further, we reviewed the timing of
funds recaptured and expended to determine compliance with the Pay It Back Act.
The programs in our review included the (1) HOME Investment Partnerships Program (TCAP),
(2) Public Housing Capital Fund (formula), (3) Public Housing Capital Fund (competitive), (4)
HPRP, (5) Native American Housing Block Grant (formula), and (6) Lead Hazard Reduction
program. We selected these programs for review based on the initial expenditure deadline for
each program. The initial expenditure deadline varied for each program; therefore, the programs
were selected based on which programs would have a substantial amount of its grantees reach its
initial expenditure deadline as of May 31, 2011.
We obtained the funds control plans for the programs that received ARRA funding from OCFO
to determine whether the plans had been appropriately modified to include Pay It Back Act
requirements for rejected, rescinded, and withdrawn funds.
From OCFO, we obtained the appropriated, obligated, unobligated, percentage unobligated, and
disbursed amounts for the programs reviewed to determine whether HUD expended ARRA
funding in accordance with ARRA requirements. We requested all HUDCAPS 5 expenditure and
recapture data for the period March 1, 2009, through May 31, 2011, for all six ARRA
appropriations under review.
From each program office under review, we requested a detailed listing of total obligations, total
disbursements, and grant obligation dates as of May 31, 2011, for all grantees of ARRA funds.
We also requested a detailed listing of ARRA funds that were identified by the program office as
recaptured as of May 31, 2011.
We also interviewed HUD’s staff from the Office of Strategic Planning and Management, CPD,
OCFO, the Office of Affordable Housing and Preservation Programs, and the Office of Public
and Indian Housing.
We used the information requested to determine whether (1) ARRA recipients met or were
expected to meet their initial expenditure requirements; (2) funds that were rejected, rescinded,
or withdrawn had been properly recaptured and were no longer available for obligation; (3) funds
control plans had been appropriately updated with Pay It Back Act requirements; and (4) HUD
5
HUD’s Central Accounting Program System
21
had adequate oversight activities in place to ensure that ARRA recipients met their expenditure
requirements.
We assessed the reliability of OCFO’s and the program offices’ data by performing
reconciliations between the two sets of reports and determining the cause for any differences.
We determined that the data were sufficiently reliable for the purposes of this audit.
We performed our audit work from April through August 2011 at the HUD offices located at 451
7th Street SW, Washington, DC. The audit covered the period March 31, 2009, through May 31,
2011, 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
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.
22
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:
• Controls over the recapture process for ARRA grants.
• Documentation of administrative controls implemented to monitor ARRA
funds.
• Grant closeout procedures implemented for ARRA grantees.
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 Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
• Administrative control documentation did not comply with requirements that
OCFO require and approve up-to-date funds control plans for ARRA
programs (finding 4).
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FOLLOW-UP ON PRIOR AUDITS
HUD Can Improve Its
Oversight of ARRA Obligation
and Expenditure Requirements,
2011-FO-0005
In our report, 2011-FO-0005, HUD Can Improve Its Oversight of ARRA Obligation
and Expenditure Requirements, issued May 20, 2011, we reported $1.6 million in
recaptured funds that must be returned to the U.S. Treasury. The Pay It Back Act
amended the recapture and reallocation provisions previously required in the statute
and required the return of recaptured funds. HUD concurred with our
recommendation and planned to return the recaptured funds to the U.S. Treasury
within 60 days of the issuance of the final report. During our review, we found that
HUD was not returning recaptured funds processed post-Pay It Back Act to the U.S.
Treasury.
Additional Details To
Supplement Our Report on
HUD’s Fiscal Years 2010 and
2009 Financial Statements,
2010-FO-0003
In our report, 2010-FO-0003, Additional Details To Supplement Our Report on
HUD’s Fiscal Years 2010 and 2009 Financial Statements, issued November 15,
2010, we reported as a significant deficiency that “HUD needs to improve
administrative control of funds.” In that report, we found that funds control plans
were not updated to reflect changes in accounting procedures, allotment holders,
or funds control officers and requirements were not always followed to support
the obligation and disbursement of funds. During our review, we found that
OCFO did not complete its review of the revised funds control plans and concur
with the revisions in a timely manner to ensure compliance with Pay It Back Act
requirements.
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Funds to be put to
number better use 1/
2A $20.85 M
2B $6.2 M
1/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an OIG recommendation is implemented. These amounts include
reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
implementing recommended improvements, avoidance of unnecessary expenditures
noted in preaward reviews, and any other savings that are specifically identified. The
recommendation is necessary to ensure the use of funds toward other activities, which
will support the mission of the Act.
25
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
Comment 3
Comment 4
26
27
Comment 5
Comment 6
28
OIG Evaluation of Auditee Comments
Comment 1 HUD generally concurred with our recommendation to return $20.85 million in
recaptured ARRA funds to the U.S. Treasury. Additionally, HUD has generally
concurred with our recommendation to recapture and return $6.2 million in Tax
Credit Assistance Program funds to the U.S. Treasury. However, HUD did not
agree with the classification of the recaptured funds as ineligible costs. OIG
reviewed the classification of the costs and determined that the recaptured funds
are more appropriately classified as funds put to better use.
Comment 2 HUD generally agrees with the finding but does not concur with our
recommendation to amend the grant closeout policy and procedures for the Lead
Hazard Reduction program. OIG believes that the incorporation of the OGC
opinion issued July 21, 2011, if appropriately included, will amend the closeout
policy and procedures as recommended. However, the inclusion of OGC opinion
issued January 24, 2011 should only be incorporated to the extent referenced in
the OGC opinion July 21, 2011. Specifically, the July 2011 opinion refers the
reader to the definition of expenditures as documented in the opinion issued
January 24, 2011. Any further references to the January 2011 opinion will not
reasonably address OIG's recommendation. Additionally, OIG concurs with
OHHLHC that any updated guidance received from OMB and OGC regarding the
expensing of Recovery Act funds for administrative fees should be included in the
policy guidance.
Comment 3 HUD does not concur with our recommendation to amend the grant closeout
policy and procedures for the Tax Assistance Credit Program. OIG disagrees
with CPD's assertion that the current grant closeout procedures will not effect the
final expedentiture of funds. The timing of the performance of closeout
procedures, which include the final drawdown of retained funds, present a
possible risk that obligated funds will be recaptured and swept by the U.S.
Treasury before the retained funds are drawn down for payment to the grantee.
The recapture of the funds for expenses already incurred poses a risk that HUD
will have to use non-ARRA resources to fulfill its obligation to the grantees.
Further, TCAP program staff have indicated that they are unaware of the number
of State Finance Agencies that are retaining funds and the amount of funds that
are retained. Therefore, OIG does not believe that sufficient information is
available to assert that the risk is reasonably mitigated as CPD indicates in the
Attachment.
Comment 4 HUD concurs with the finding; however, HUD requests that OIG remove the
related recommendations because a similar finding was reported in the OIG audit
report 2011-FO-003 issued November 15, 2010. OIG will not remove the
recommendations, however OIG will close out the recommendations once the
final actions have been completed from the prior year report.
29
Comment 5 In a meeting with TCAP program staff on June 14, 2011, OIG was informed that
the $6.2 million would be returned to the Treasury at the end of the program.
Further, on August 1, 2011, OIG received an email communication from TCAP
program staff that stated that the $6.2 million is reported as
unreserved/unobligated on the status of funds report because CPD still has the
option to award them to other grantees. Therefore, CPD intended that the funds
remain on HUD’s books until the obligation requirement expired, which is
September 30, 2011. Additionally, CPD did not recapture 6 the funds or indicated
to HUD’s Accounting Division that the funds should be recaptured and returned
to the U.S. Treasury because the current status of the funds does not allow HUD
to return the funds to the U.S. Treasury. OIG acknowledges that CPD deobligated
the $6,223,557 of ARRA funds as reported in this report. However, OIG
disagrees with the characterization that the funds have already been recaptured.
OIG understands from the CFO comments to this report that it is working with the
CPD program staff to recapture the funds. The CFO comments would suggest
that the CFO is aware that the funds are not appropriately classified as recaptured
for the purposes of the returning the funds to the U.S. Treasury. In this report,
OIG is recommending that CPD recapture the funds in the manner required to
inform HUD’s Accounting Division that the funds have been recaptured for the
purposes of returning the funds to the U. S. Treasury.
Comment 6 OIG disagrees with CPD that the retention of funds is not related to the grants
closeout process. During the grant closeout process, costs may be found to be
ineligible due to the expensing of funds after the expenditure deadline. While the
likelihood of this issue is unknown, the risk of the occurrence is the basis of
OIG’s recommendation. Additionally, in email communications OIG received
from TCAP program staff, they indicated unawareness of the number of grantees
that were retaining a percentage of funds and expressed the difficulty in
determining which grantees retain funds. Further, as documented in the TCAP
grant agreement, “The Grantee is responsible for the use of its TCAP grant. The
use of subgrantees or contractors does not relieve the Grantee of this
responsibility. Grantees are responsible for managing the day-to-day operations
of grant and subgrant activities.”
The TCAP grant program was established in 2009 as a new program with new
requirements which must be met to ensure compliance with ARRA. CPD
acknowledges in the Attachment that it has not released any grant closeout
guidance to the grantees. Therefore, guidance must be provided to the grantees to
ensure that the information is communicated to the project owners to ensure
compliance with ARRA.
6
For accounting purposes, deobligated funds are not processed in the same manner as recaptured funds.
Specifically, the transaction code entered to recapture the funds that are not eligible for reallocation or will not be
reallocated is different than the transaction code used for the deobligation of funds. Therefore, HUD’s Accounting
Division would require the $6.2 million be processed as a recapture that will not be reallocated so that the funds may
be returned to the U.S. Treasury.
30
American Recovery and Reinvestment Act of 2009 Grantees Met Initial Expenditure Requirements, but HUD Should Return Recaptured Funds to the U.S. Treasury and Ensure That Grant Closeout Procedures Comply With the Act
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-30.
Below is a raw (and likely hideous) rendition of the original report. (PDF)