oversight

Evaluation of HUD's Property Inventory System

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-27.

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

                                                U.S. DEPARTMENT OF
                               HOUSING AND URBAN DEVELOPMENT
                                        OFFICE OF INSPECTOR GENERAL



                                                    September 27, 2013
                                                                                              MEMORANDUM NO:
                                                                                                   2013-IE-0804

Memorandum
TO:           Michael Anderson, Chief Human Capital Officer, A
              David P. Sidari, Deputy Chief Financial Officer, F

              //signed//
FROM:         Donna M. Hawkins
              Acting Director, Inspections and Evaluations Division, GAH

SUBJECT:      Evaluation of HUD’s Property Inventory System


                                           INTRODUCTION

We completed an evaluation of the U.S. Department of Housing and Urban Development’s
(HUD) property inventory system. The evaluation was performed at the request of Office of
Inspector General (OIG) management due to long standing issues with HUD’s property
inventory system. Our objectives were to determine why HUD did not have a properly working
property inventory system in place and the status of procuring a new property inventory system.

                                METHODOLOGY AND SCOPE

We performed our evaluation in Washington, DC, from April through July 2013.

To accomplish our objectives, we

   •   Reviewed applicable laws and regulations and HUD’s policies and procedures related to
       the property inventory system.

   •   Interviewed staff from the Office of the Chief Human Capital Officer, the Office of the
       Chief Information Officer, the Office of the Chief Financial Officer, and the Office of the
       Chief Procurement Officer.

   •   Reviewed documentation provided by the Human Capital, Information, Procurement, and
       Financial Offices related to the property inventory system, the upgrade of the Facilities

                              Office of Audit, Inspections and Evaluations Division
                              451 7th Street SW., Room 8170, Washington, DC 20410
                                    Phone (202) 402-8482, Fax (202) 401-2488
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
       Integrated Resource Management System (FIRMS), and HUD’s efforts to procure a new
       property inventory system.

Our review did not include testing FIRMS or reviewing the inventory process. We conducted
this review in accordance with the Quality Standards for Inspection and Evaluation issued by the
Council of the Inspectors General on Integrity and Efficiency.

                                       BACKGROUND

HUD’s Human Capital Office, specifically the Office of Facilities and Management Services
(OFMS), oversees HUD’s personal property management policy development, implementation,
and administration. OFMS is responsible for coordinating the physical inventory, maintaining
accountability through the inventory and reconciliation process, and reporting excess property to
the General Services Administration. OFMS conducts an inventory of HUD’s property annually.
HUD’s inventory includes all equipment that must be inventoried and tracked with a value of
$1,000 or more. The inventory is conducted with barcode scanners, which are used to scan each
piece of equipment. If an item does not have a barcode, that item is immediately barcoded and
scanned. The information from the scanners is then uploaded to FIRMS, which records the
inventory in the system.

Besides OFMS, other program offices within HUD have responsibilities related to the property
inventory system. The following chart describes those responsibilities.

HUD office        Responsibility
Office of the     The Information Office acquires and maintains HUD’s systems. The
Chief             government technical representative for FIRMS, within the
Information       Information Office, is responsible for contract administration and
Officer           delegates some of those responsibilities to the government technical
                  monitor.
Office of the     The Procurement Office procures the service or product when the
Chief             contracting effort becomes a requirement. It is considered a
Procurement       requirement when there is a requisition with approved funding and a
Officer           statement of work or a performance work statement for the
                  procurement of an item or service that is part of an approved request.
                  The Procurement Office is also responsible for ensuring that the
                  procurement request is processed in a timely manner.
Office of the   According to the Chief Financial Officers Act of 1990, the Chief
Chief Financial Financial Officer must direct, manage, and provide guidance and
Officer         oversight of agency financial management personnel, activities, and
                operations, including the implementation of the agency asset
                management systems, to include a property and inventory
                management and control system. The Financial Office is also

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                     responsible for reconciling the depreciation reports automatically
                     created by FIRMS with the general ledger quarterly.

FIRMS

OFMS uses FIRMS to monitor and track HUD’s property. FIRMS is a mixed financial
management system with the purpose of streamlining and consolidating information about
essential business functions, including facilities and asset management provided by OFMS. The
system is used by HUD staff to consolidate, automate, and provide reports on furniture,
equipment, personal property, space, and lease life-cycle processes. FIRMS is capable of
producing the following reports pertinent to our review: Furniture and Equipment Listing,
Depreciation, and Excess Personal Property reports. 1 Since FIRMS did not integrate with other
HUD systems, OFMS had to rely on the Procurement Office, the Information Office, and
purchase card holders for necessary acquisition and disposal information.

Title 40, United States Code, “Public Buildings, Properties and Works,” requires executive
agencies to maintain adequate inventory controls and accountability systems for property under
their control. Additionally, the Federal Managers Financial Integrity Act (FMFIA) mandates that
the agency head establish administrative and internal accounting controls that reasonably ensure
that funds, property, and other assets are safeguarded against waste, loss, unauthorized use, or
misappropriation.

HUD OIG’s Financial Audits Division issued report number 2010-FO-0004, entitled “Review of
HUD’s Property and Equipment,” on August 17, 2010. The Division found that HUD lacked
control over the acquisition of accountable equipment and HUD’s property management system
had weaknesses. Specifically, FIRMS did not interface between HUD’s core financial system
and its acquisition systems. The Division recommended that the General Deputy Assistant
Secretary/Chief Human Capital Officer coordinate with the Financial, Information, and
Procurement Offices to develop and implement system interfaces, including but not limited to
interfaces between FIRMS and the core financial system and the acquisition system. Although
the final target action date was December 31, 2011, this recommendation remained open. The
action plan had not been implemented due to funding constraints.

                                         RESULTS OF REVIEW

HUD did not have a properly working property inventory system in place. HUD had
experienced significant problems and delays in getting FIRMS operational and continued to be
noncompliant with the Joint Financial Management Improvement Program (JFMIP) 2

1
  FIRMS is also capable of producing the Rent/Bill Detail, Space Information, and Lease Reports.
2
  JFMIP is a joint undertaking of the U.S. Department of the Treasury, the U.S. Government Accountability Office,
the Office of Management and Budget, and the Office of Personnel Management, working in cooperation with other
agencies to improve financial management practices in the Government. Although JFMIP was dissolved in March
2010, to determine compliance with the Federal Financial Management Improvement Act requirements, agency
heads evaluate their systems against JFMIP requirements.
                                                        3
requirements. The main problem was the expiration of the FIRMS support contract. As a result
of the expired contract, HUD had no contractor in place to test FIRMS before changing the
operating system to Windows 7 in 2013. As of the end of our review, the planned new property
inventory management system had not been purchased since the appropriate funding was not
available. Instead, HUD procured upgraded FIRMS supporting software in September 2012.
However, HUD did not obtain a contractor to upgrade and maintain FIRMS until May 2013. At
the conclusion of our review, FIRMS remained noncompliant with JFMIP standards and did not
meet HUD’s needs. As a result, HUD had no assurance that its assets were accounted for
properly. Additionally, HUD’s inventory was left vulnerable to loss, theft, or misappropriation.

HUD Did Not Have a Properly Working Property Inventory System

HUD did not have a properly working property inventory system in place because its service
support contract expired in August 2011. As a result, when HUD changed its operating system
to Windows 7 in 2013, there was no contractor in place to test FIRMS within the new operating
system environment. Ultimately, it was the lack of contractor support and the new operating
system that affected OFMS’s ability to run reports and rendered FIRMS inoperable.

FIRMS Deficiencies

FIRMS did not comply with JFMIP requirements. Therefore, it did not meet the Human Capital
Office’s needs. Specifically, the system did not

    •   Produce depreciation reports,
    •   Maintain historical data,
    •   Provide an audit trail,
    •   Properly upload items scanned with the inventory bar code scanners,
    •   Reconcile items entered into the system, and
    •   Integrate with HUD’s financial and procurement systems.

Although JFMIP requirements state that financial management systems must be designed to
facilitate the preparation of financial reports, FIRMS did not produce depreciation reports. The
most recent FIRMS depreciation report still documented inaccuracies included in the November
2012 report. The Financial Office’s Accounting Center uses the depreciation reports to record
the depreciation expense in the general ledger. Since the Accounting Center did not have access
to FIRMS, it received the contractor-generated depreciation reports from the Human Capital
Office quarterly. The Human Capital Office provided the November 2012 depreciation report in
December 2012. After December 2012, the Accounting Center received no depreciation reports
from the Human Capital Office until June 2013, when it provided reports for December 2012
through May 2013. Upon review of these reports, the Accounting Center found that the
discrepancies in the November 2012 report still existed. Specifically, there was more than a $1.6
million discrepancy between the general ledger equipment account and the depreciation report.
This discrepancy was due to purchased equipment not being included in the inventory or on the
depreciation report. As a result, the general ledger’s capitalized equipment balance was not
                                                4
accurate. Further, since FIRMS did not operate as intended, the Accounting Center was unsure
whether new depreciable equipment had been purchased.

Although JFMIP requirements state that financial management systems must be designed to
provide a complete audit trail, Human Capital Office staff cited problems with FIRMS’ inability
to maintain historical data. After the contract expired, the Human Capital Office found instances
of equipment being inventoried but disappearing from the system. For example, on April 17,
2013, OFMS provided a 2012 inventory count of 21,938 items valued at more than $33.9
million. However, OFMS provided another 2012 inventory count on May 8, 2013, with 8,848
items valued at less than $16 million. The two 2012 inventories differed by 13,090 items and
more than $17.9 million. Additionally, based on the FIRMS Sighted Inventory Reports provided
by OFMS, it appeared that HUD’s inventory had diminished over the years. Specifically, in
fiscal years 2009, 2010, 2011, and 2012, the inventory reports indicated that HUD had $25.1
million, $9.7 million, $15.2 million, and $16 million worth of inventory, respectively. However,
since the data entered into FIRMS were not maintained on a historical basis and changed
depending on when the report was produced, we could not rely on the inventory count, inventory
value, or FIRMS Sighted Inventory Reports. By not having reliable historical data, FIRMS did
not provide an audit trail, thereby leaving the inventory vulnerable to loss, theft, or
misappropriation.

OFMS staff also encountered problems with the inventory bar code scanners and reconciliation.
Although JFMIP requirements consider the use of barcode scanners as an option rather than a
requirement, since HUD uses these devices to conduct its inventory, they should be functional.
However, when OFMS scanned items with the barcode scanners and uploaded the information to
FIRMS, some of the scanned items did not appear in the system. FIRMS did not allow a
reconciliation of these items to be performed. Instead it produced an error report. This
limitation forced OFMS to make manual entries into the system. OFMS staff manually
reconciled the differences between the system and the error report using an Administrative
Adjustment Form, which had been in use since 2011. This form documents new acquisitions and
inventory adjustments. Since OFMS could not rely on the bar code scanners or perform
reconciliation, there was no assurance that the inventory in FIRMS was accurate.

JFMIP requirements state that property management systems should be capable of interfacing
with other financial and mixed systems. 3 However, OFMS staff cited problems with system
integration. Specifically, the system did not integrate with HUD’s financial and procurement
systems. This limitation forced OFMS to rely on the Procurement and Information Offices and
purchase card holders for necessary information on acquisitions and disposals. If OFMS was not
notified, the purchased items would not be inventoried. In 2010, OIG report number 2010-FO-
0004 found the same interface issues and recommended that the Human Capital Office
coordinate with other HUD program areas to develop interfaces between FIRMS and the core
financial and acquisition systems. However, this recommendation remained open. Therefore,
the risk of errors and omissions in reports generated by FIRMS persisted.

3
  Mixed systems are defined as any information system that supports both the financial and nonfinancial functions of
the Federal Government or components thereof.
                                                         5
FIRMS Noncompliance

HUD’s Financial Management Systems Plan deemed FIRMS as noncompliant in fiscal years
2010, 4 2011, and 2012. According to the Federal Financial Management Improvement Act of
1996 and Office of Management and Budget (OMB) Circular A-127, if a financial management
system is deemed noncompliant, the agency must establish a remediation plan to resolve the
issues and bring the system into compliance. The Human Capital Office provided its
remediation plans to the Financial Office. The Financial Office monitored the Human Capital
Office’s progress in resolving the noncompliance; however, as of the end of our review, FIRMS
remained noncompliant.

The Property Management Systems Requirements document is one of a series of financial
management system requirement documents published in October 2000 by JFMIP. The
document includes 54 requirements for property management systems. As a result of the
deficiencies noted in our review, we requested that HUD officials assess FIRMS against the 54
JFMIP system requirements. Based on an HUD official’s assessment, FIRMS was noncompliant
with 19 of the 54 JFMIP requirements. Although HUD personnel classified another six
requirements as partially compliant, OIG considered FIRMS to be noncompliant with those
requirements as well since it was not fully compliant. The 25 noncompliant items indicated that
FIRMS did not

    •   Have an audit trail for all adjustments to quantities and units and transfer disposal and
        retirement actions.
    •   Record entries to a property record, including the identification of the individual(s)
        entering or approving the information or data.
    •   Capture the property custodian’s identity and the accountable organization.
    •   Record beginning balances, acquisitions, and withdrawals and calculate ending balances
        expressed in values and physical units.

Without a properly working property inventory system, HUD had no assurance that its assets
were accounted for properly. Additionally, HUD’s inventory was vulnerable to loss, theft, or
misappropriation. This is in direct contrast with OMB Circular A-123, which states that internal
controls should be designed to provide reasonable assurance regarding prevention or prompt
detection of unauthorized acquisition, use, or disposition of assets.

FIRMS Procurement Status

As of the end of our review, the planned new property inventory management system had not
been purchased since the appropriate funding was not available. Instead, HUD procured
upgraded FIRMS supporting software in September 2012. However, it did not obtain a
contractor to upgrade and maintain FIRMS until May 2013.
4
 In 2010, FIRMS was originally reported as compliant, but in November 2010, that assertion was revised to
noncompliant as of September 30, 2010.
                                                        6
On August 8, 2006, HUD awarded Pyramid Systems, Inc., a firm fixed-price contract to provide
services for FIRMS. The period of performance included 1 base year, August 9, 2006, through
August 8, 2007, with 4 option years ending August 8, 2011. Specifically, Pyramid Systems was
contracted to maintain, update, and enhance HUD’s FIRMS (serves headquarters) and the
iFIRMS 5 (serves the field) interface. FIRMS remained without contractor support until 2013.
As a result of the expired contract, HUD had no contractor in place to test FIRMS before
changing the operating system to Windows 7 in 2013.

To alleviate this issue, HUD opted to use a two-phase strategy for obtaining a property
management system as follows:

(1) Short-term plan
(2) Long-term plan

Short-Term Plan

The first phase was considered the short-term approach. Regarding the short-term plan, although
there was no contractor in place to upgrade and service the system, the Information Office
purchased the 20.2 version of the FIRMS supporting software in September 2012. To rectify the
contract lapse, HUD issued a modification to an existing HUD legacy contract, which was
originally awarded to Pyramid Systems in January 2010. This 2010 contract included updating,
maintenance, operational support, development, and administration of current and future Human
Capital and Information Office automated systems. Since FIRMS was not 1 of the 18 systems
included on this contract, HUD issued a modification action, adding FIRMS to this contract in
2013.

The Information Office entered the request for the short-term plan into the HUD Integrated
Acquisition Management System 6 on March 22, 2013. Modification 3 to the HUD legacy
contract was ultimately awarded on May 23, 2013, almost 2 years after the original contract
expired. This modification added FIRMS as contract line items to the last 2 option years of the
legacy contract under the ongoing operations and corrective maintenance tasks.
After modification 3 was awarded, FIRMS went “live,” and the Human Capital and Information
Offices began working with the contractor to resolve any issues. The barcode scanners had been
activated; however, the scanners would need to be tested in a live environment before the Human
Capital Office could attest to their functionality. Additionally, while FIRMS was able to produce
the depreciation reports, the reports were inaccurate. Specifically, the depreciation reports
carried items that were already fully depreciated and should not have shown up on these reports.
Pyramid Systems was working to resolve these issues. As of the end of our review, the

5
 iFIRMS is a Web-based HUD Intranet interface that provides access to the FIRMS database.
6
 The HUD Integrated Acquisition Management System is a Web-based commercial-off-the-shelf integrated
acquisition procurement contract writing system that generates award documents in accordance with the Federal
Acquisition Regulations. The Information Office enters procurement requisitions into the system for the
Procurement Office’s review and processing.
                                                        7
Information Office anticipated that FIRMS would not be upgraded until January 2014, although
the software had already been purchased and the contractor was in place. The Information
Office attributed the FIRMS upgrading delays to the time it would take to procure servers and
install the software, install and configure version 20.2 on the new server, and fully test and
deploy the software before release. Therefore, since HUD had experienced significant problems
and delays in getting FIRMS operational, HUD’s assets would remain unaccounted for and
unprotected for at least an additional 5 months. However, we have no assurance the upgrade will
resolve the system deficiencies.

Long-Term Plan

The second phase was a long-term plan to purchase a new system. As of the end of our review,
the procurement of a new system had not started since the appropriate funds were not available.
Specifically, the Human Capital Office had only its operations and maintenance funds available.
However, to purchase a new system, it would need development modernization and enhancement
funds. The Information Office controls both of these working capital funds. According to an
Information Office official, development modernization and enhancement funds had been
allotted for fiscal year 2013. However, the Information Office officials thought the process for
procuring a new system would not start until at least 3 months after the award of the maintenance
contract and it could take up to a year for the contract to be awarded.

Although the Chief Financial Officers Act of 1990 (CFO Act) states that an agency’s Chief
Financial Officer has the responsibility for ensuring that the agency has a property management
system in place, the Financial Office had limited involvement in the process. When we spoke
with program officials from the Human Capital, Information, Procurement, and Financial
Offices, they indicated that the Information and Human Capital Offices had the responsibility
mentioned in the CFO Act. None of the offices, including the Financial Office, mentioned
HUD’s Chief Financial Officer as having this responsibility or being involved in the process.
The Financial Office mentioned only reviewing the depreciation reports, its annual data call for
system compliance with computer security and internal controls, and its monitoring of the
remediation plans submitted by the Human Capital Office. However, we do not agree that these
items cover the Financial Office’s CFO Act responsibilities. The Financial Office agreed that it
was not fully safeguarding HUD’s assets and stated that HUD’s fixed assets were financially
immaterial. However, due to FMFIA requirements, HUD must establish administrative and
internal accounting controls that reasonably ensure that funds, property, and other assets are
safeguarded against waste, loss, unauthorized use, or misappropriation. Further, the CFO Act
requires the Financial Office to direct, manage, and provide guidance and oversight of agency
financial management personnel, activities, and operations, including the implementation of the
agency asset management systems, to include a property and inventory management and control
system.

                                   RECOMMENDATIONS

We recommend that the Office of Chief Human Capital Officer

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       1A.    Test the upgraded FIRMS to determine whether the upgrade meets its needs and
              advise the Financial Office and Information Office of any deficiencies.

We recommend that the Office of Chief Financial Officer

       1B.    Adhere to the CFO Act of 1990 by ensuring that HUD has a properly working
              property inventory system in place.

       1C.    Coordinate with the Human Capital Office, Information Office, and Procurement
              Office to develop and implement a properly working, JFMIP compliant property
              management system by the end of fiscal year 2014.




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Appendix A

         AUDITEE COMMENTS AND OIG’S EVALUATION

The Office of the Chief Human Capital Officer informed us that it did not have any comments on
our memorandum. However, the Office of the Chief Financial Officer provided its comments
below.

Ref to OIG Evaluation                      Auditee Comments




Comment 1

Comment 2

Comment 3


Comment 4



                                             10
Comment 5

            Comment 5




               11
                         OIG Evaluation of Auditee Comments

Comment 1   OCFO acknowledges that FIRMS contractor support lapsed for several months.
            However, FIRMS did not have contractor support for 1 year and 9 months, from
            August 2011, when the contract expired, until May 2013, when HUD obtained a
            contractor to upgrade and maintain FIRMS. Although HUD procured the
            upgraded FIRMS supporting software in September 2012, Office of Chief
            Information Office (OCIO) did not obtain contractor support until May 2013.

Comment 2   Although FIRMS is back online, it still does not comply with JFMIP requirements
            or meet OCHCO's needs. Specifically, the barcode scanners have been activated,
            however, they need to be tested in a live environment before OCHCO can attest to
            their functionality. More importantly, while FIRMS is able to produce the
            depreciation reports, the reports are still inaccurate because there is more than a
            $1.6 million discrepancy between the general ledger equipment account and the
            depreciation report. OCHCO and OCIO are working with the contractor to resolve
            these issues.

Comment 3   OCIO, not OFMS, anticipated that FIRMS would not be upgraded until January
            2014, although the software had already been purchased and the contractor was in
            place.

Comment 4   We agree that OFMS should have a role in the replacement of FIRMS, however,
            according to the CFO Act of 1990, the OCFO should have a role in ensuring that
            the New Core project team is advised of the need to consider the replacement of
            FIRMS as a part of the Department's New Core project or integrated into New
            Core where appropriate.

Comment 5   It is imperative that the Department has a properly working, JFMIP compliant
            property management system in place by the end of fiscal year 2014, so that
            HUD’s assets are accounted for properly and safeguarded from loss, theft or
            misappropriation.

            We are encouraged by OCFO's willingness to work with OFMS in improving
            FIRMS. We look forward to reviewing OCFO's implementation of our
            recommendations during the audit resolution process.




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