OFFICE OF AUDIT REGION 1 BOSTON, MA The U.S. Department of Housing and Urban Development HOME Investment Partnerships Program 2013-BO-0001 FEBRUARY 12, 2013 Issue Date: February 12, 2013 Audit Report Number: 2013-BO-0001 TO: Mark Johnston Acting Assistant Secretary, Community Planning and Development, D FROM: Edgar Moore, Regional Inspector General for Audit, Boston Region, 1AGA SUBJECT: HUD’s Proposed HOME Regulations Generally Addressed Systemic Deficiencies, but Field Office Monitoring and Data Validation Need Improvement Enclosed is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) final results of our review of HUD’s HOME Investment Partnerships Program and systemic deficiencies identified within prior Office of Inspector General audit reports. HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on recommended corrective actions. For each recommendation without a management decision, please respond and provide status reports in accordance with the HUD Handbook. Please furnish us copies of any correspondence or directives issued because of the audit. The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its publicly available reports on the OIG Web site. Accordingly, this report will be posted at http://www.hudoig.gov. If you have any questions or comments about this report, please do not hesitate to call me at 212- 264-4174. cc: Yolánda Chavez, Deputy Assistant Secretary for Grant Programs, DG February 12, 2013 HUD’s Proposed HOME Regulations Generally Addressed Systemic Deficiencies, but Field Office Monitoring and Data Validation Need Improvement Highlights Audit Report Number 2013-BO-0001 What We Audited and Why What We Found We reviewed the U.S. Department of If properly implemented, HUD’s proposed changes to Housing and Urban Development’s HOME regulations and controls should mitigate the (HUD) Home Investment Partnerships systemic deficiencies identified in prior HUD OIG Program (HOME) as part of an Office audit reports with the exception of (1) the program of Inspector General (OIG) plan to office’s oversight of grantee monitoring and (2) improve HUD’s execution and validating the reliability of HOME data. 1 accountability of fiscal responsibility. Our objective was to determine whether Office of Community Planning and Development HUD’s proposed regulation changes (CPD) program officials’ oversight of field office and controls would mitigate the monitoring and grantee compliance required systemic deficiencies identified in prior improvement because the quality management review OIG audit reports. process they relied on failed to identify systemic monitoring flaws and officials did not use onsite monitoring data to assess monitoring efforts. As a What We Recommend result, officials could not ensure that monitoring was complete and effective and may have missed We recommend that the Acting opportunities to identify systemic issues requiring Assistant Secretary for Community corrective action, such as seldom or never monitored Planning and Development (1) develop and longstanding noncompliant grantees. and implement procedures to oversee and assess the effectiveness of field Although CPD officials had improved controls over offices’ monitoring efforts, and (2) HOME data in the Integrated Disbursement and develop and implement a quality control Information System, they lacked a complete process system to validate the accuracy and for validating the data. They focused their efforts on reliability of HOME data in the training, moving the database to a Web-based system, Integrated Disbursement and and implementing system controls to improve grantee Information System. compliance and data reliability. However, the HOME data were not fully validated, and the reliability of the data as a whole was unknown. With hundreds of grantees and thousands of subgrantees, reliable data are critical in overseeing the program, identifying high-risk grantees to monitor, and responding to public and congressional requests regarding the program. 1 See appendix C for our detailed conclusions. TABLE OF CONTENTS Background and Objective 3 Results of Audit Finding 1: HUD Officials’ Oversight of Field Office Monitoring Efforts and Grantee Compliance Had Weaknesses 4 Finding 2: HUD Officials Had Improved Controls over HOME Data, but Data Reliability Was Insufficient 7 Scope and Methodology 10 Internal Controls 12 Follow-up on Prior Audits 14 Appendixes A. Details of Open Internal Audits and Recommendations 15 B. Auditee Comments and OIG’s Evaluation 19 C. Conclusions Regarding Systemic Deficiencies 27 2 BACKGROUND AND OBJECTIVE The HOME Investment Partnerships Program, established in 1992, provides between $1 and $2 billion in formula grants each year to States and local jurisdictions (grantees). Grantees use and distribute the funds to communities and nonprofit groups to build, buy, or rehabilitate affordable housing for rent, home ownership, or to provide direct rental assistance to low-income people. HOME is a large program with approximately 642 grantees, thousands of subrecipients, and more than 15,000 open activities at any one time. The U.S. Department of Housing and Urban Development’s (HUD) Assistant Secretary for Community Planning and Development (CPD) is responsible for the program, and the Office of Affordable Housing Programs directly administers and oversees the program. Monitoring at the grantee level is achieved primarily through onsite performance and compliance reviews conducted by HUD’s 42 local field offices. Due to the large number of participants and its inability to monitor all grantees onsite, HUD also relies on its automated Integrated Disbursement and Information System to electronically monitor grantees. Grantees, in turn, are responsible for monitoring their subgrantees. HUD maintains two information systems to manage the program. The Integrated Disbursement and Information System (IDIS) reports program performance and is used for oversight and grantee compliance. This system was moved to a Web-based platform in 2009, enabling substantial improvements including new input controls, flags, and system reports to enhance reporting and compliance. The Grants Management Process (GMP) database is used to record monitoring efforts and results and to facilitate the selection of high-risk grantees for monitoring. The HOME regulations were last substantively revised in September 1996, and the Office of Affordable Housing Programs is in the process of updating the regulations to address known issues.2 We expect the revised regulations to be published after the issuance of this report. The HOME program and HUD’s oversight received considerable public scrutiny in Washington Post articles and congressional hearings. Congress expressed its concern when it reduced the 2012 HOME budget to $1 billion and as a condition of funding, required that HUD report within 120 days on how CPD was improving its program’s data quality, data management, and grantee oversight and accountability, including addressing problems identified in Office of Inspector General Reports since 2006 and ongoing audits.3 Due to our longstanding concerns and congressional requests, we performed this audit with the objective of determining whether HUD’s proposed regulations and other controls, if properly implemented, would mitigate the systemic findings in prior Office of Inspector General (OIG) audit reports. 2 24 CFR (Code of Federal Regulations) Part 92, The HOME Investment Partnerships Program Final Rule 3 Section 232 of the Consolidated and Further Continuing Appropriations Act, 2012 (P.L. 112-55) 3 RESULTS OF AUDIT Finding 1: HUD Officials’ Oversight of Field Office Monitoring Efforts and Grantee Compliance Had Weaknesses CPD program officials’ oversight of field office monitoring of grantee compliance was not sufficient to ensure that monitoring was effective and complete. HUD headquarters officials did not determine whether field office monitoring efforts were effective, identify systemic deficiencies, or oversee the monitoring of non-high-risk grantees.4 This condition occurred because the quality management review process they relied on failed to identify systemic monitoring flaws and program officials did not use the information derived during onsite performance reviews to assess monitoring efforts. As a result, program officials could not ensure that monitoring was complete and effective and may have missed opportunities to identify systemic issues requiring corrective action, such as seldom- or never-monitored grantees and longstanding noncompliant grantees. In addition, program officials did not assess the monitoring of grantees that field offices determined were not high risk to ensure the soundness of risk assessments and obtain early warnings of potential deficiencies. Program Officials, Did Not Determine Whether Monitoring Was Effective and Complete HUD’s policy is for program officials to continually assess the effectiveness of grantee monitoring.5 Therefore, officials maintain several systems and processes to facilitate the policy, including (1) quality management reviews that evaluate field office monitoring efforts and (2) field office onsite monitoring results that provide grantee performance and compliance data in the GMP database. However, the quality management reviews were not adequate to ensure that monitoring was effective, and officials did not evaluate field offices’ monitoring results to determine whether monitoring was effective and complete.6 When Congress asked for program details, HUD queried the GMP database and reported that 238 HOME reviews were completed during 2009 and 2010 and identified 591 compliance and performance findings. However, program officials did not routinely use the database to determine whether monitoring was effective or complete. Rather they relied on field offices to oversee monitoring and the resolution of findings. As a result, officials did not know and could not readily 4 HUD Monitoring Desk Guide and CPD Notice 12-02 5 HUD Monitoring Desk Guide 6 According to the U.S Government Accountability Office, monitoring is complete only when deficiencies are corrected, the corrective action produces improvements, and it is decided that further management action is not needed. 4 show whether the field offices’ monitoring efforts were effective and how many of the 591 findings and any later findings had been resolved. Quality Management Reviews Did Not Identify Deficiencies The program office relied on its quality management review process to assess monitoring efforts. The most recent review reported that field offices followed the monitoring handbook and effectively carried out monitoring.7 However, an audit completed 3 months later revealed that the monitoring handbook was not always followed and findings were not followed up on in a timely manner.8 For example, OIG reported that field offices failed to use required monitoring handbook exhibits and document follow-up with grantees that failed to meet target dates. Thus, the reviews were not an effective tool for identifying monitoring deficiencies and should not be relied on as a sole source for assessing and overseeing monitoring. The Program Office Did Not Oversee Monitoring of Non- High-Risk Grantees HUD’s policy is that field offices should monitor a limited number of grantees that they determine to be non-high risk to validate the soundness of the risk assessment rating criteria and obtain early warnings of potentially serious problems.9 Program officials said that some reviews were conducted; however, the number completed and results were unknown. Therefore, without overseeing, documenting, and evaluating non-high-risk grantee monitoring results, field offices may not have tested a sufficient number of non-high-risk grantees, their risk assessments may not have been sound, and the highest risk grantees may not have been selected for monitoring. In addition, the program office may have lost opportunities to obtain early warnings of potentially serious problems. Data Were Available To Assess Monitoring During our review, we determined that HUD program officials can assess the effectiveness of field monitoring by using data in the GMP database. The database can identify metrics such as Grantees monitored and not monitored, 7 HUD’s Fiscal Year 2011 Quality Management Review Report 8 OIG Audit Report 2012 FO 0003, Additional Details To Supplement Our Report on HUD’s Fiscal Years 2011 and 2010 Financial Statements 9 If travel resources permit, according to CPD Notice 12-02 5 Areas tested and not tested, Types of findings and concerns, Continually noncompliant grantees, and The resolution of findings and concerns. Thus, the program office could and should use the data to assess monitoring efforts using the above metrics. The procedures should ensure that (1) seldom- or never-monitored grantees are identified and minimized to reduce the fraud risk, (2) monitoring provides adequate program coverage of known systemic deficiencies,10 (3) findings and results are analyzed to identify systemic deficiencies requiring additional management emphasis, (4) continually noncompliant grantees are identified and appropriate corrective action is taken, and (5) monitoring is complete or appropriate action is taken for grantees that have not resolved a noncompliance in a timely manner.11 Conclusion Program officials could not show that monitoring efforts were effective and complete. As a result, the fraud risk for grantees seldom or never monitored was not known and may not have been mitigated; systemic deficiencies may not have been tested, identified, and mitigated; findings may not have been resolved in a timely manner; and continually noncompliant grantees may not have been identified and appropriate corrective action not taken to preserve the integrity of the program and conserve HUD resources. Consequently, program officials’ oversight of field office monitoring efforts was insufficient. We attributed this condition to reliance on ineffective quality management reviews12 and the lack of procedures to evaluate monitoring results in the GMP database. Recommendations We recommend that the Acting Assistant Secretary for Community Planning and Development 1A. Develop and implement comprehensive procedures to assess the effectiveness and completeness of monitoring efforts using metric or query data in the GMP database as detailed in this finding. . 1B. Develop and implement procedures to evaluate the field office testing of non- high-risk grantees to ensure the soundness of risk assessments and obtain early warning of potential deficiencies as provided for in HUD CPD Notice 12-02. 10 To include testing systemic issues such as program income (see related finding 2) 11 As provided for in 24 CFR 92.551 12 We expect this to be corrected in part during the resolution of OIG Audit Report 2012-FO-0003. See Follow-up on Prior Audits section in appendix A in this report. 6 Finding 2: HUD Officials Had Improved Controls Over HOME Data, but Data Reliability Was Insufficient Although HUD officials had implemented controls to improve the reliability of HOME data in the Integrated Disbursement and Information System, they lacked a complete process for validating the data. This occurred because officials were concerned with implementing data input controls and had not yet established data validation controls. As a result, they could not show that the new controls were effective and HOME program data as a whole were complete, accurate, and supported by appropriate documentation. Data Were Not Always Reliable Despite regulations requiring grantees to properly report HOME information, OIG audits have shown that grantees often inaccurately reported HOME data in the Integrated Disbursement and Information System; such as, program income, commitments, and activity status including not closing activities in a timely manner. This condition was primarily due to grantee errors and omissions and known system weaknesses such as the system’s method of accounting for program income. HUD Officials Had Improved Controls Over Data Reliability and Compliance HUD’s policy is to validate data for accuracy, completeness, and consistency to the extent possible.13 The program office and its field offices use several processes to promote data integrity and validity. The program office implements system controls to ensure that some data are complete and within parameters. It also generates system reports and posts them on its Web site. The rationale is that if a report showed poor performance or noncompliance due to inaccurate or incomplete data, the field office, local official, and grantee could detect and correct the data. HUD officials were aware of data and compliance issues and focused considerable efforts on training, moving the system from an enterprise-based to a Web-based system, and designing and implementing system controls to improve data reliability and program compliance to address such issues as the following: Program income issues – Officials modified the system to remove limitations that discouraged and prevented grantees from complying with requirements. 13 HUD Monitoring Desk Guide 7 Commitment issues – Officials added an electronic certification to confirm that they complied with requirements and were supported by required documentation. Activity status and expenditure issues – Officials implemented a process to automatically cancel activities that showed that no funds were spent within their first year. System flags were also added to alert grantees when they were in danger of not meeting regulatory requirements such as the 5-year statutory expenditure limit. Therefore, if properly implemented, these additional controls should improve data reliability and grantee compliance. HUD’s Validation Process Was Not Complete HUD’s field offices also test and validate data during individual onsite grantee performance reviews. However, HUD’s validation efforts were not complete in that the program office did not assess the extent of field offices’ data testing, the results, and whether data errors and findings had been corrected. For example, program officials did not verify whether field offices tested and verified that grantees properly reported program income, commitments, and expenditures in the HOME database and whether any deficiencies found were resolved. Thus, the program office did not know and could not readily show whether HOME data as a whole were accurate, complete, and consistent. Further, program officials may have missed opportunities for identifying additional systemic data issues. Monitoring Data Can Be Used To Validate Data and Identify Reliability and Compliance Issues We found that field offices’ onsite monitoring results in the GMP database could and should be used to validate data. Field offices monitor the reliability of data in the Integrated Disbursement and Information System during onsite grantee performance reviews and enter their results into the GMP database. The GMP database can be queried to show what data tests were completed; their results, findings, and concerns; and whether data findings and concerns have been resolved. Thus, monitoring data in the GMP database can and should be used to assess the overall reliability of HOME data in the Integrated Disbursement and Information System and improve management of the HOME program. For example, if GMP queries show that grantees are properly recording program income, the results can be used as a basis to validate the reliability of program income data. If queries show that program income was not tested frequently, the program office could 8 issue a directive to increase testing. Also, if queries indicate systemic data deficiencies or longstanding unresolved findings, the program office could investigate, determine the cause, and take action to mitigate them. Conclusion Although HUD officials had improved controls over HOME data in the Integrated Disbursement and Information System, they did not validate the data to better ensure that controls are effective and the data are reliable. This occurred because officials were concerned with implementing data input controls and had not yet established data validation controls. Reliable data are critical to HUD’s oversight because HUD lacks the resources to visit all 642 participating jurisdiction grantees and observe the 15,000 to 20,000 HOME activities. HUD officials rely on the grantee-provided data to (1) report performance, (2) identify and correct noncompliance, (3) determine which grantees to monitor onsite, and (4) successfully implement the eCon14 system. Thus reliable data are critical for overseeing program compliance, are a primary source for selecting grantees that will and will not be monitored, and is needed to respond to public and congressional inquiries regarding the program. Recommendations We recommend that the Acting Assistant Secretary for Community Planning and Development 2A. Develop and implement a quality control system to validate HOME program data recorded in the Integrated Disbursement and Information System by using field office monitoring data in the GMP database or some other auditable method, such as statistical sampling and testing of key program data. 2B. Develop and implement formal procedures to continually assess the effectiveness and completeness of field office data monitoring efforts using GMP monitoring data to include (1) verifying that HOME data are tested, (2) analyzing results to determine whether program data as a whole are reliable and to identify systemic data issues or issues that should be addressed, and (3) verifying that findings are corrected in a timely manner and monitoring is complete. 14 The “eCon Planning Suite” is an online tool designed to help grantees with their needs analysis and strategic decision making. 9 SCOPE AND METHODOLOGY We conducted the audit from our Hartford, CT, field office and at HUD’s Office of Affordable Housing Programs in Washington, DC, between February and October 2012. The audit scope generally covered the period between January 2006 and January 2012. To accomplish our objectives, we Reviewed the existing and proposed HOME regulations, the Departmental Management Control Program Handbook, the HUD Monitoring Desk Guide, and relevant handbooks and notices. Interviewed HUD officials to identify and obtain an understanding of controls over the HOME program and status of the proposed regulations. Reviewed the 77 HUD OIG audit reports issued during the period to identify systemic deficiencies and traced questioned costs to the Audit Resolution and Corrective Action Tracking System to identify any problems with recovering funds not spent in accordance with program requirements. Determined, if properly implemented, whether HUD’s proposed regulation changes, combined with existing and proposed controls, provided reasonable assurance that systemic deficiencies identified in our reports will be prevented, detected, and corrected. This audit was limited to a review of policies and procedures and, thus, we did not test the implementation of the controls. Therefore, our results may be relied upon only if HUD properly implements its proposed regulations and existing and planned controls, such as updating the monitoring handbook if and when the proposed regulation is final and taking appropriate corrective and remedial actions for noncompliant grantees. Regarding our reliance on automated data, (1) We relied on HUD’s automated Audit Resolution and Corrective Action Tracking System to identify the status of audit findings and the recovery of questioned costs. The risk of inaccurate data was low due to system controls and separation of duties between the audit and HUD officials responsible for maintaining the system. Thus, we performed minimal exception testing by following up with audit officials and grantees to verify the accuracy of data indicating problems with resolving findings or recovering questioned costs. Our limited testing indicated no material data errors. Thus, we believe the data were reliable for our audit objectives. (2) We considered data in HUD’s GMP system. We used these data obtained by HUD to show the number of grantees tested and findings and concerns. These data did not materially affect our results; thus, we considered the data adequate for our purposes. 10 (3) We considered data in HUD’s Integrated Disbursement and Information System. Our audit reports showed that the data reliability for this system was a systemic deficiency. Thus, we did not test the data during this audit and recommended that HUD validate the data (see finding 2). 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 objective. 11 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 internal controls over the following systemic deficiencies were relevant to our audit objective: Income eligibility Commitments and expenditures Property standards Stalled activities Terminated projects Reporting on the Integrated Disbursement and Information System Program income Unsupported and ineligible costs, including missing documents and improper procurement procedures Ownership and lease issues Monitoring 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. 12 Significant Deficiencies Based on our review, we believe that the following items are significant deficiencies: The Office of Affordable Housing Programs lacked procedures for and did not assess the effectiveness of its field offices’ grantee monitoring efforts (see finding 1). The Office of Affordable Housing Programs did not have adequate controls to assess and ensure the reliability of HOME data in the Integrated Disbursement and Information System (see finding 2). 13 FOLLOW-UP ON PRIOR AUDITS During the audit, we reviewed 77 HUD OIG external and internal audit reports issued between January 2006 and 2012 to identify systemic deficiencies. We limited our follow-up for external audits to findings with questioned costs to determine whether there were any systemic problems with recovering and realizing the questioned costs. We determined that there were no material issues with recovering questioned costs. We limited our follow-up for internal audits to findings and recommendations related to the systemic HOME findings in the six internal reports issued during our audit period. Overall, the open recommendations were not in dispute, HUD had submitted its proposed corrective action plan to HUD OIG, and OIG agreed with proposed corrective actions. Therefore, we expected that the open recommendations would be resolved through the normal audit resolution process.15 We noted that one issue was affecting the closure of several HOME and other program findings. At issue was the method HUD used to account for grant funds and thereby account for compliance with statutory spending requirements. OIG’s position was that the accounting method HUD used did not comply with Federal financial management system requirements. HUD did not agree, and OIG was waiting for a formal opinion from the U.S. Government Accountability Office. However, this issue did not impact our results or conclusions for this audit. 15 See appendix A for a complete listing of the reports and open recommendations. 14 APPENDIXES Appendix A DETAILS OF OPEN INTERNAL AUDITS AND RECOMMENDATIONS 1. OIG Audit Report 2009-AT-0001, “HUD Lacked Adequate Controls to Ensure the Timely Commitment and Expenditure of HOME funds.” We recommended that HUD’s General Deputy Assistant Secretary for Community Planning and Development 1a - Ensure that field offices require grantees to close out in a timely manner $62,201,487 in activities reflected in its open activities report that are more than five years old and cancel the fund balances. 1b - Require grantees to reimburse HUD from nonfederal sources any portion of the $11,634,558 for activities listed in appendix C that HUD determines had been terminated, voluntarily or involuntarily. When making this determination, HUD should consider the grantees’ lack of timely physical completion and/or production of affordable housing occupied by HOME income-eligible individuals. 1c - Recapture any shortfalls generated by the closure and deobligation of fund balances associated with the open activities. 1d - Establish and implement controls to ensure that field offices require grantees to close out future HOME activities within a timeframe that will permit reallocation and use of the funds for eligible activities in time to avoid losing them to recapture by the United States Treasury under provisions of Public Law 101-510. 2a - Establish and implement procedures to monitor the accuracy of commitments that grantees enter into the information system. These procedures should include expanding HUD’s risk rating system to include risk factors for this review area and development of an appropriate monitoring checklist to ensure consistency and thoroughness of coverage among field offices. 3a - Obtain a formal legal opinion from the Office of General Counsel on whether HUD’s cumulative technique for assessing compliance with commitment deadlines is consistent with and is an allowable alternative to the 24-month commitment requirement stipulated at Title II of the Cranston-Gonzalez National Affordable Housing Act. 3b - Obtain a formal legal opinion from the Office of General Counsel on whether HUD’s first-in first-out method for assessing compliance with HOME expenditure requirements is consistent with and is an allowable alternative to the eight-year 15 recapture deadline pursuant to Public Law 101-510. 3c - Revise the regulations to ensure the procedures for assessing compliance with commitment and expenditure requirements are consistent with statutory requirements and discontinue use of the cumulative technique for assessing deadline compliance and the first-in first-out method to account for the commitment and expenditure of HOME funds. 2. OIG Audit Report Number 2009-CH-0002, “The Office of Affordable Housing Programs’ Oversight of HOME Investment Partnerships Program Income Was Inadequate.” We recommended that HUD’s General Deputy Assistant Secretary for Community Planning and Development require the Office to 1a - Require the 26 participating jurisdictions to disburse the $39,611,376 in available Program income as of December 31, 2008, for eligible housing activities and/or administrative costs before drawing down Program funds from their treasury accounts as appropriate. 1b - Implement adequate procedures and controls to ensure grantees disburse available Program income for eligible housing activities and/or administration costs before drawing down Program funds from their treasury accounts as appropriate. The procedures and controls should include but not be limited to updating HUD’s System to prevent participating jurisdictions from drawing down Program funds from their treasury accounts when they have available Program income and requiring participating jurisdictions to certify that they do not have available Program income when they draw down Program funds. In addition, the Office may need to implement interim procedures and controls until HUD’s System can be updated. 2a - Implement adequate procedures and controls to ensure that grantees report Program income in HUD’s System accurately and in a timely manner. The procedures and controls should include but not be limited to creating a report from HUD’s System to identify grantees that may not be reporting all Program income in HUD’s System. 3. OIG Audit Report Number 2010-CH-0002, “The Office of Affordable Housing Programs’ Oversight of Resale and Recapture Provisions for HOME Investment Partnerships Program Assisted Homeownership Project Was Inadequate.” We recommended that HUD’s General Deputy Assistant Secretary for Community Planning and Development require the Office to 1a - Implement adequate procedures and controls to ensure that participating jurisdictions (1) include appropriate resale and/or recapture provisions in their consolidated and/or action plans and (2) implement appropriate resale or recapture provisions for their projects. 16 1b - Require the State of New York and Cobb County, GA, Consortium to reimburse their Programs $30,000 and $9,947, respectively, from non-Federal funds for the two projects that they did not ensure met HUD’s affordability requirements. 1c - Require the State of Montana to place a deed restriction, land covenant, affidavit, and/or lien on the property to ensure that it would recoup all or a portion of the $3,139 in Program funds used for project number 3515 if the housing does not continue to be the principal residence of the household for the duration of the affordability period. If the State cannot place a deed restriction, land covenant, affidavit, and/or lien on the property, it should reimburse its Program $3,139 from non-Federal funds. 4. OIG Audit Report 2010-FO-0003, “Additional Details To Supplement Our Report on HUD’s Fiscal Years 2009 and 2010 Financial Statements.” We recommended that CPD 1e - Determine whether the $24.7 million in unexpended funds for the HOME program from fiscal years 2001 and earlier that are not spent in a timely manner should be recaptured and reallocated in next year’s formula allocation. 1f - Develop a policy for the HOME program that would track expenditure deadlines for funds reserved and committed to community housing development organizations and subgrantees separately. 4a - Ensure that its programs are accounting for and reporting their financial and performance information in accordance with Federal financial management system requirements. 5. OIG Audit Report 2011-FO-0003, “Additional Details To Supplement Our Report on HUD’s Fiscal Years 2010 and 2009 Financial Statements.” We recommended that CPD 1a - Cease the changes being made to IDIS [HUD’s Integrated Disbursement and Information System] for the HOME program related to the FIFO [first-in first-out] rules until the cumulative effect of using FIFO can be quantified on the financial statements. 1b - Change IDIS so that the budget fiscal year source is identified and attached to each activity from the point of obligation to disbursement. 1c - Cease the use of FIFO to allocate funds (fund activities) within IDIS and disburse grant payments. Match outlays for activity disbursements to the obligation and budget fiscal source year in which the obligation was incurred and match the allocation of funds (activity funding) to the budget fiscal year source of the obligation. 1d - Include as part of the annual CAPER [consolidated annual performance evaluation report] a reconciliation of HUD’s grant management system, IDIS, to 17 grantee financial accounting records on an individual annual grant basis, not cumulatively, for each annual grant awarded to the grantee. 2c - Review the 510 obligations which were not distributed to the program offices during the open obligations review and deobligate amounts tied to closed or inactive projects, including the $27.5 million we identified during our review as expired or inactive. 2g - In coordination with the CFO [Chief Financial Officer], develop and publish written guidance and policies to establish a benchmark for field directors to use to determine the validity of the open obligation. The guidance should include specific procedures for open obligation amounts, wherein the obligation was made prior to a specified amount of time, as well as disbursement inactivity beyond a specified amount of time. 2h - In coordination with the CFO, develop procedures to periodically evaluate HUD’s program financial activities and operations to ensure that current accounting policies are sufficient and appropriate and to ensure that they are implemented and operating by program and accounting staff as intended. 6. OIG Audit Report 2012-FO-0003, “Additional Details To Supplement Our Report on HUD’s Fiscal Years 2011 and 2010 Financial Statements.” We recommended that CPD 3d - Ensure that field offices have developed and implemented control activities, which are documented and can be periodically tested and monitored by the Office of Field Management, to ensure that the field offices have a system to ensure compliance with the requirements within the biennial risk analysis process Notices for Implementing Risk Analyses (CPD Notice 09-04) for Monitoring Community Planning and Development Grant Programs and the CPD Monitoring Handbook. 3e - Review information within the GMP system for consistency and completeness and follow up with field offices when information is incomplete or inconsistent among the risk analysis, work plans, and completed monitoring efforts. 3f - Ensure that all required information has been updated and entered into the GMP after the due dates for submissions have passed and follow up with field offices that have not entered their information. 3g - Follow up on information in GMP to ensure that findings which had questioned costs have been repaid and noncompliance and internal control deficiencies have been addressed. 3h - Develop, document, and implement internal control procedures for OAHP’s [Office of Affordable Housing Preservation] review to ensure that grantees comply with the terms of the grant agreement, which require the grantees to perform monitoring procedures. 18 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 19 AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 Comment 2 Comment 3 20 AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 4 Comment 5 Comment 6 21 AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 6 Comment 7 Comment 8 Comment 9 Comment 10 22 AUDITEE COMMENTS AND OIG’S EVALUATION Ref to OIG Evaluation Auditee Comments Comment 10 Comment 11 23 OIG Evaluation of Auditee Comments Comment 1 OIG does not have an incomplete understanding of CPD’s existing monitoring procedures. We used HUD's and GAO's standard for determining whether monitoring was complete and effective. Specifically, HUD's Monitoring Desk guide Chapter 7 and the GAO consider monitoring complete and effective when deficiencies are corrected, the corrective action produces improvements, and it is decided that further management action is not needed. However, we believe that HUD officials lacked auditable and reliable procedures to verify that grantee deficiencies and findings observed during field office monitoring visits were adequately resolved. Our finding never mentions that absolute compliance is an expectation; thus, we recommend that CPD officials implement procedures to provide reasonable assurances to verify the extent to which its monitoring is effective and complete. Comment 2 As stated in the report, QMR reviews were not an effective tool for identifying monitoring deficiencies and should not be relied on as a sole source for assessing and overseeing monitoring. Although CPD officials’s actions to implement training should improve monitoring; training in itself does not ensure that field offices will properly conduct monitoring, or that deficiencies will be identified and corrected. Thus, we made no recommendations regarding training in this report, and suggest that other methods to complement how CPD officials assess their monitoring efforts be developed. Comment 3 We agree headquarters should communicate with the field offices. However, officials provided no evidence that these discussions resulted in an overall assessment of whether field offices properly conducted monitoring, identified deficiencies, and ensured that grantee deficiencies were adequately resolved. Comment 4 HUD's policy is that when travel resources are available field offices should monitor a limited number of non-high risk grantees to validate the soundness of the risk assessment rating criteria and obtain early warnings of potentially serious problems. Thus, officials are correct in that the policy does not explicitly require CPD officials to evaluate the results of non-high risk monitoring to determine the appropriateness of risk assessment factors; however, CPD officials are responsible for establishing the risk assessment factors and procedures. Therefore, we maintain our recommendation that officials should analyze the results of this monitoring to determine if low risk grantees are being monitored, the results thereof, and whether any changes to the risk assessment procedures are warranted. Comment 5 OIG encourages HUD officials in their efforts to improve monitoring; and acknowledge that the actions taken as a result of their contracting for an independent assessment of their risk analysis and monitoring procedures may be used to satisfy our recommendations if the actions ensure that CPD officials document and ensure that deficiencies are identified and corrected, and monitoring is completed per GAO standards. 24 Comment 6 We disagree that the finding is speculative in nature, as prior OIG reports clearly showed that IDIS data was not always reliable. We asked CPD officials to show us what controls they implemented to increase data reliability and how they validated the data. Officials showed us the controls they implemented to increase data reliability, however, they lacked procedures to document how they validated the data. Comment 7 We agree HUD's new controls should increase data reliability however; during the audit and in their comments CPD officials provided no procedures or evidence to show the controls were effective and data was now reliable. Therefore, we maintain that they should develop specific procedures and controls to document how they validate the data. This process should be ongoing to ensure that IDIS data used to monitor program performance and compliance are valid and reliable. Comment 8 Our recommendation does not require HUD to validate all data nor do we imply that all data should be subjected to extensive validation procedures. HUD already performs some data validation during field office on-site reviews. Although each grantee is not tested the results of this sample could be used to draw conclusions regarding the integrity of HOME data as a whole. The level of validation and amount thereof is thus left to HUD's discretion. Comment 9 Field Office monitoring of grantees and the GMP data base are maintained at considerable expense to the taxpayers; and thus, we believe they should be used to their maximum extent. During the audit officials told us that they believed that the GMP could be queried at the question level with assistance from the contractor. However, some field offices were consolidating their monitoring results in pdf form rather than entering their results into the discrete GMP fields. Officials said this may have occurred because some staff is still not comfortable with computers and or perhaps as a time saving method. Nonetheless, by consolidating results in pdf form we agree the data is less usable. Thus, we suggest that CPD officials should consult with their contractor to determine if discrete GMP data fields can be developed and require field offices to enter monitoring results in the appropriate discrete GMP data fields, so that the data can be analyzed. If CPD officials do not use the GMP these changes may not be necessary. Comment 10 Regarding CPD’s process for validating HOME IDIS data, CPD officials commented that; 1) CPD compares project data to IDIS data; and 2) headquarters and field offices periodically review HOME IDIS reports. However, during the audit in its comments CPD officials provided no records, reports, data or other auditable evidence to show that the new IDIS controls were effective and that IDIS data is now reliable. Thus, we maintain our recommendation that CPD should develop formal written procedures and obtain auditable and verifiable information to validate data. This can be achieved using GMP monitoring data, statistical sampling, or some other method that shows IDIS data is reliable. 25 As for the basis for our decision, OIG auditors used HUD's Monitoring Desk guide Chapter 7 and the GAO standards that consider monitoring complete and effective when deficiencies are corrected, the corrective action produces improvements, and it is decided that further management action is not needed. Note, we did not define the degree to which CPD officials should ensure field offices are testing grantees for HOME IDIS data. We are leaving that to CPD officials to define and determine what is practicable. Comment 11 Congress has tasked OIG and HUD to increase controls over the HOME program. At a minimum, CPD officials’ oversight should provide reasonable assurance that known instances of noncompliance are addressed and corrected. Therefore, we strongly disagree that our findings are not substantiated. Finding one is being reported in part because CPD officials did not know and did not show that the 591 HOME compliance and performance findings reported to Congress were resolved. We reported finding two because HUD uses IDIS to monitor compliance and prior OIG audit reports showed that IDIS data was not reliable and during our review CPD officials did not have auditable and verifiable procedures to show that HOME IDIS data were verified and reliable. 26 Appendix C CONCLUSIONS REGARDING SYSTEMIC DEFICIENCIES During our review we rolled up the results of 77 OIG issued audit reports on HUD’s HOME program. Specifically, we identified and classified ten systemic HOME deficiency areas and ranked them below in order of occurrence. Deficiencies reported in 6 Internal 71 External Common Areas audit reports audit reports 1 Unsupported and Ineligible Costs 0 139 2 Reporting on IDIS 4 55 3 Commitments and Expenditures 3 50 4 Property Standards 0 46 5 Inadequate Monitoring Procedures 3 32 6 Program Income 1 27 7 Income Eligibility 0 25 8 Terminated Projects 1 22 9 Ownership/ lease issues 1 15 10 Stalled Activities 1 12 Totals: 14 423 We reviewed HUD’s proposed regulations and preventive, detective, and corrective controls pertaining to common deficiency areas and concluded that if properly implemented, HUD’s proposed changes to the HOME regulations and controls should mitigate the systemic deficiencies identified in prior HUD OIG audit reports16. 16 With the exception of (1) the program office’s oversight of grantee monitoring (See Finding 1), and (2) validating the reliability of HOME data (See Finding 2). 27
HUD's Proposed HOME Regulations Generally Addressed Systemic Deficiencies, but Field Office Monitoring and Data Validation Need Improvement
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-02-12.
Below is a raw (and likely hideous) rendition of the original report. (PDF)