oversight

The HUD Office of the Chief Financial Officer Had Not Always Implemented Its User Fee Policy

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-09-30.

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

OFFICE OF AUDIT
REGION 10
SEATTLE, WA                                    




           U.S. Department of Housing and Urban
                       Development
                      Washington, DC

                        User Fee Requirements




 

2014-KC-0006                                      SEPTEMBER 30, 2014 
                                                                    Issue Date: September 30, 2014

                                                                    Audit Report Number: 2014-KC-0006
                 


TO:            Joseph Hungate, Deputy Chief Financial Officer, F

               //signed//
FROM:          Ronald J. Hosking, Regional Inspector General for Audit, Seattle Region, 0AGA


SUBJECT: The HUD Office of the Chief Financial Officer Had Not Always Implemented Its
User Fee Policy


    Attached 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 user fees.

    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 8M, 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
913-551-5870.




                                                Office of Audit Region 7
                                400 State Avenue, Suite 501, Kansas City, KS 66101
                                      Phone (913) 551-5870, Fax (913) 551-5877
                          Visit the Office of Inspector General Web site at www.hudoig.gov.
                                           September 30, 2014

                                           The HUD Office of the Chief Financial Officer Had Not
                                           Always Implemented Its User Fee Policy
                  

 


Highlights
Audit Report 2014-KC-0006

 

    What We Audited and Why                 What We Found

We audited the U.S. Department of          HUD’s Office of the Chief Financial Officer (OCFO)
Housing and Urban Development’s            had not always implemented its user fee policy in
(HUD) fiscal year 2013 compliance          HUD CFO Handbook 1830.6, REV-1, which is
with the user fee requirements in Office   designed to comply with Circular A-25 and CFO Act
of Management and Budget Circular A-       requirements for user fee reviews. OCFO did not
25 and the Chief Financial Officers        consider other user fees material in comparison to
(CFO) Act of 1990. We initiated the        primary collections from insurance fees and loan
audit based on observations in our audit   guarantee fees at FHA and the Government National
of the Federal Housing Administration      Mortgage Association. As a result, HUD may not
(FHA) annual lender renewal process.       recover potential fee revenue from beneficiaries of its
(2010-KC-0002, issued August 6, 2010)      programs. OCFO planned to implement the HUD
We noted that FHA had not updated its      CFO Handbook 1830.6, REV-1, procedures in the next
user fees for participation in the FHA     HUD budget process.
program since 1993. Our audit
objective was to determine whether
HUD complied with the user fee
requirements of The CFO Act and
Circular A-25.

    What We Recommend

We recommend that HUD implement
HUD CFO Handbook 1830.6, REV-1,
publish a user fee schedule, and address
HUD’s user fees in its CFO report.
 


                           TABLE OF CONTENTS

Background and Objective                                                         3

Results of Audit
Finding: The HUD Office of the Chief Financial Officer Had Not Always Implemented
         Its User Fee Policy                                                      4

Scope and Methodology                                                            7

Internal Controls                                                                8

Appendixes
A.    Auditee Comments and OIG’s Evaluation                                      10
B.    Criteria                                                                   12




                                           2
 


                       BACKGROUND AND OBJECTIVES

The legislative authority for user fees (or charges) is part of Title V of the Independent Office Act of
1952, codified in 31 U.S.C. (United States Code) 9701. It provides the general authority and
requirements for user fees, commonly referred to as the User Charge Statute. Office of
Management and Budget (OMB) Circular A-25 provides guidance for this Act.

The Chief Financial Officers (CFO) Act of 1990 requires a biennial review of fees and other
charges and states the requirement in a broad sense. Section 902.a.(8) requires that an agency
biennially review the fees, royalties, rents, and other charges imposed by the agency for services and
things of value it provides and make recommendations on revising those charges to reflect costs
incurred by it in providing those services and things of value.

On July 8, 1993, OMB updated Circular A-25. Circular A-25 provides that each agency will review
user fees (or charges) biennially. These reviews will include (1) assurance that existing fees are
adjusted to reflect unanticipated changes in costs or market values and (2) a review of other
programs in the agency to determine whether fees should be initiated for Government services or
goods for which it does not currently charge fees.

Agencies are responsible for the initiation and adoption of user fee schedules consistent with the
policies in Circular A-25, which instructs agencies to discuss the results of the user fee reviews and
any resulting proposals in the Agency Financial Report (CFO report) required by the CFO Act.
This reporting may be done in agency performance and accountability reports.

In June 1998, the U.S. Government Accountability Office (GAO) reported, “Some Agencies Do
Not Comply with Review Requirements” (GAO/GGD-98-161). As of its report date, GAO had
received responses from 23 of the 24 CFO agencies. It had not received a response from the
U.S. Department of Housing and Urban Development (HUD).

The May 7, 2012, revision to HUD’s CFO Handbook 1830.6 updated the policy to agree with the
1993 OMB manual, changed the analysis required from annual to biennial, and eliminated outdated
lists of user fees and examples.

GAO commented in its September 2013 Report on Fee Design Options and Implications for
Managing Revenue Instability (GAO-13-820), “In 2012, the President’s Budget reported nearly
$300 billion collected in user fees from the public. Given the nation’s fiscal condition it is critical
that every funding source and spending decision be carefully considered and applied to its best use.”
Also, “GAO has previously recommended that the Office of Management and Budget (OMB)
review fee-funded programs and identify opportunities to improve their design and better align fee
collections with program costs.”

Our audit objective was to determine whether HUD complied with the user fee requirements of the
CFO Act of 1990 and Circular A-25.



                                                   3
 


                                 RESULTS OF AUDIT


Finding:  The HUD Office of the Chief Financial Officer Had Not
Always Implemented Its User Fee Policy
The HUD Office of the Chief Financial Officer (OCFO) had not always implemented its user fee
policy because the CFO for Budget did not believe the user fees were material in comparison to
other collections, such as insurance fees and loan guarantee fees from the Federal Housing
Administration (FHA) and the Government National Mortgage Association (GNMA). As a
result, HUD may not recover potential fee revenue from beneficiaries of its programs.



    HUD’s User Fee Policy Was Not
    Always Implemented
                                       
 
               OCFO had not always implemented its user fee policy. HUD CFO Handbook
               1830.6, REV-1, HUD’s policy, was designed to comply with Circular A-25 and
               CFO Act requirements for user fee reviews. The handbook, circular, and CFO
               Act all require that HUD review its user fees biennially and make adjustments to
               those fees as necessary. Additionally, HUD’s policy requires that it (1) have a
               systematic process to review user fees and incorporate fee proposals into the
               budget process, (2) include instructions for user fee reviews in the budget process,
               (3) maintain a schedule of user fees for tracking by OCFO, and (4) address the
               topic of user fees in the CFO report. Further, Circular A-25 states that, whenever
               possible, user fees and other charges should be set as rates rather than fixed dollar
               amounts to adjust for changes in costs to the Government or service provided.

               HUD did not have a systematic process for reviewing user fees and incorporating
               fee proposals into the budget process. HUD’s existing practices did not fulfill all
               the requirements Circular A-25 and the CFO Act. We observed some
               independent processes for reviewing fees at GNMA and for FHA mortgage
               insurance premiums. However, other fees had not changed in recent history.

               The Office of Housing’s lender certification process charged fees for certification
               and recertification of lenders and branch offices. These fees were flat dollar
               amounts that had not changed since 1993. In addition, the design of the fee was
               not responsive to inflation, the size of the lender, or risks associated with
               particular lenders. The fee also did not recoup the expense of lender monitoring,
               which, according to HUD’s comments in the Federal Register for the last fee
               change, is a part of the recertification process.




                                                 4
 


               Further, although the Office of Multifamily Housing Programs’ underwriting fees
               had not changed since 1996, they were based on a percentage of the underlying
               mortgage. While Multifamily Housing had trimmed underwriting costs by
               moving to a streamlined process for those that qualified, it allowed traditional
               underwriting. The traditional application process was much more costly and
               could benefit from a user fee review.

               Instructions for user fee reviews were not included in the budget process as
               described by HUD’s policy. Contrary to HUD Handbook 1830.6, the Assistant
               CFO for Budget did not include guidance, instructions, and other necessary
               information as well as appropriate schedules for submission of information on
               user fees. Therefore, the CFO did not receive responses from the divisions for
               these steps. The Assistant CFO for Budget also did not prepare the required
               summary report of user fees, user fee reviews, disposition of user fees, and
               changes made to user fees for inclusion in the agency financial report as required
               by Circular A-25.

               HUD did not maintain a schedule of user fees to be tracked by OCFO. Since
               OCFO was not aware of a centrally tracked list of fees, it could not immediately
               identify or track HUD fees at the time of our entrance conference. Centrally
               communicating requirements and documenting results are necessary to meet the
               requirements under The CFO Act, Circular A-25, and HUD’s policy.

               The topic of user fees was not fully addressed in the CFO report. Without the
               ability to track fees, the HUD CFO report could not fully address the topic of user
               fees as required by Circular A-25.

    User Fees Were Not Considered
    Material

               The Assistant CFO for Budget did not believe the user fees were material in
               comparison to other collections, such as insurance fees and loan guarantee fees
               from FHA and GNMA, and, therefore, did not pursue activities to calculate, track,
               and collect user fees. However, we did not find provisions for materiality or
               significance in the Handbook or Circular A-25.

    Revenues Might Not Be
    Realized

               HUD may not recover potential fee revenue from beneficiaries of its programs.
               Although we observed some efforts to adjust fees, implementing a structured
               process, such as that in HUD CFO Handbook 1830.6, REV-1, will help to ensure
               that OCFO meets its requirements under The CFO Act and Circular A-25.



                                                5
 


    Recommendations

              We recommend that HUD’s CFO

              1A.     Implement HUD CFO Handbook 1830.6, REV-1, in HUD’s next budget
                      process.

              1B.     Identify all user fees and publish a user fee schedule for use by OCFO, other
                      Government users, customers, and the public.

              1C.     Address HUD’s user fees in HUD’s Agency Financial Report.




                                                6
 



                         SCOPE AND METHODOLOGY

We performed our audit work between April and August 2014. We conducted audit fieldwork at
HUD headquarters in Washington, DC, and in our office in Seattle, WA. Our audit period
generally covered October 1, 2012, through March 31, 2014.

To accomplish our objective, we

       Reviewed criteria related to user fee requirements.
       Reviewed HUD’s policies and procedures for user fees.
       Interviewed and coordinated with HUD OCFO.
       Interviewed and obtained additional information from HUD staff to clarify policies and
        procedures.
       Identified programs with user fees.
       Determined whether each of the programs reviewed user fees regularly.
       Reviewed user fees at GNMA and Housing and the overall user fee review process and
        reporting performed by OCFO.

We did not rely on computer-processed data. Instead, we traced or verified information to
supporting documentation, from which we drew our conclusions. We did not use sampling.

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.




                                                7
 


                                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
                 objective:

                       Program operations - Policies and procedures that management has
                        implemented to reasonably ensure that HUD’s collection of user fees for
                        billable services meets program objectives.

                       Compliance with laws and regulations - Policies and procedures that
                        management has implemented to reasonably ensure that user fees are
                        collected consistent with laws and regulations.

                       Safeguarding resources - Policies and procedures implemented to ensure that
                        opportunities to collect user fees are appropriately identified, analyzed
                        biennially, and adjusted as necessary.

                 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.




                                                   8
 



    Significant Deficiency

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

                      HUD had not always implemented its policy to review user fees and update
                       those fees as needed (finding 1).




                                                  9
 




                        APPENDIXES

Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation      Auditee Comments

Comment 1




                            10
 



                        OIG Evaluation of Auditee Comments

Comment 1   The OCFO generally agreed with our finding and recommendations and has
            begun to implement corrective action. Once the OCFO develops specifics of its
            implementation plan and target completion dates, it will provide us with its
            proposed management decisions.
 




                                           11
 


Appendix B

                                         CRITERIA

The CFO Act of 1990 requires a biennial review of fees and other charges and states the
requirement in a broad sense. Section 902.a. under the “Authority and functions of agency Chief
Financial Officers” states, “An agency Chief Financial Officer shall— (8.) review, on a biennial
basis, the fees, royalties, rents, and other charges imposed by the agency for services and things
of value it provides, and make recommendations on revising those charges to reflect costs
incurred by it in providing those services and things of value.”

OMB Circular A-25 - User charges. 6. General policy: A user charge, as described below, will
be assessed against each identifiable recipient for special benefits derived from Federal activities
beyond those received by the general public. When the imposition of user charges is prohibited
or restricted by existing law, agencies will review activities periodically and recommend
legislative changes when appropriate…

6a. Special benefits… 2. Determining the amount of user charges to assess.

       (a) Except as provided in Section 6c, user charges will be sufficient to recover the full
       cost to the Federal Government (as defined in Section 6d) of providing the service,
       resource, or good when the Government is acting in its capacity as sovereign.

       (b) Except as provided in Section 6c, user charges will be based on market prices...
       Under these business-type conditions, user charges need not be limited to the recovery of
       full cost and may yield net revenues. …

       (d) Whenever possible, charges should be set as rates rather than fixed dollar amounts in
       order to adjust for changes in costs to the Government or changes in market prices of the
       good, resource, or service provided (as defined in Section 6d).

6c. Exceptions…

6d. Determining full cost and market price. 1. “Full cost” includes all direct and indirect costs
to any part of the Federal Government of providing a good, resource, or service. These costs
include, but are not limited to, an appropriate share of:

       (a) Direct and indirect personnel costs, …(b) Physical overhead, consulting, and other
       indirect costs … (c) The management and supervisory costs. (d) The costs of
       enforcement, collection, research, establishment of standards, and regulation, including
       any required environmental impact statements.
 




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