oversight

HUD Did Not Complete an Adequate Front-End Risk Assessment for the Rental Assistance Demonstration

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-09-03.

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

     HUD’s Office of Public and Indian
     Housing and Office of Housing –
            Washington, DC
      Rental Assistance Demonstration, Public Housing
                        Component




Office of Audit, Region 4      Audit Report Number: 2015-AT-0003
Atlanta, GA                                     September 3, 2015
c




To:            Thomas R. Davis, Director for Office of Recapitalization, HTD
               Jemine Bryon, General Deputy Assistant Secretary for Public and Indian Housing,
               P
               Genger Charles, Acting General Deputy Assistant Secretary for Housing, H


               //signed//
From:          Nikita N. Irons, Regional Inspector General for Audit, Atlanta Region, 4AGA
Subject:       HUD Did Not Complete an Adequate Front-End Risk Assessment for the Rental
               Assistance Demonstration




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 Rental Assistance Demonstration.
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
404-331-3369.
                       Audit Report Number: 2015-AT-0003
                       Date: September 3, 2015

                       HUD Did Not Complete an Adequate Front-End Risk Assessment for the
                       Rental Assistance Demonstration




Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) Rental
Assistance Demonstration. 1 We initiated the audit under the HUD Office of Inspector General’s
annual audit plan. Our objective was to determine whether HUD had adequate controls over the
Demonstration, to include (1) an appropriate completion of a risk assessment that adequately
evaluated the following risks: (a) the need for additional administrative funding, (b) a
determination of funding level and computation of program funds, (c) site conditions and
residents’ ability to return after conversion, and (d) management and information systems
capacity by participants; and (2) a plan to reduce these risks to an acceptable level.

What We Found
The Office of Public and Indian Housing (PIH) did not sufficiently identify the risks that could
disrupt an effective implementation of the Demonstration in its front-end risk assessment
(FERA), document a plan to reduce these risks to an acceptable level, or conduct the FERA in a
timely manner as required, as PIH completed the FERA nearly two years after budgetary
approval for the Demonstration and nearly one year after it began accepting applications for the
Demonstration. Additionally, the Office of Housing failed to document its contribution to the
FERA prepared by PIH and clearly identify specific risks associated with Housing’s program
units.

What We Recommend
We recommend that (1) PIH reexamine and modify the FERA completed for the Demonstration,
and (2) Housing review the existing FERA and modify it to clearly identify specific risks for its
program units, and ensure that its contribution to the FERA prepared by PIH is documented via
signatures of the proper Office of Housing officials to ensure that risks are sufficiently identified
and a plan for reducing the risks to an acceptable level is in place to promote an effective and
successful implementation of the Demonstration.




1
  Although the Demonstration is administered by the Office of Recapitalization within the Office of Housing, it
involves the Office of Public and Indian Housing and the Office of Multifamily Housing Programs. See the
Background and Objective section of the report for details.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: HUD Did Not Complete an Adequate Front-End Risk Assessment for
         the Rental Assistance Demonstration.............................................................................. 5

Scope and Methodology .........................................................................................12

Internal Controls ....................................................................................................13

Appendixes ..............................................................................................................14
         A. Auditee Comments and OIG’s Evaluation ............................................................. 14




                                                            2
Background and Objective
The Rental Assistance Demonstration is authorized by the Consolidated and Further Continuing
Appropriations Act of 2012 (Public Law 112-55, approved November 18, 2011), which provided
fiscal year 2012 appropriations for the U.S. Department of Housing and Urban Development
(HUD).

The Demonstration has two separate components. The first component allows projects funded
under the public housing and Section 8 Moderate Rehabilitation programs to convert their
assistance to long-term, project-based Section 8 rental assistance contracts. Under this
component, public housing agencies (PHA) and Moderate Rehabilitation owners may choose
between two forms of Section 8 housing assistance payments contracts: project-based vouchers
or project-based rental assistance. No incremental funds were authorized for this component.
PHAs were to convert their assistance at current subsidy levels. The 2012 Appropriations Act
authorized up to 60,000 program units to convert assistance under this component. The 2015
Appropriations Act, however, increased the conversion limit from 60,000 to 185,000 units and
extended the date to accept applications for the Demonstration to September 30, 2018.

The purpose of the Demonstration is to provide an opportunity to test the conversion of public
housing and other HUD-assisted properties to long-term, project-based Section 8 rental
assistance to achieve certain goals, including the preservation and improvement of these
properties through enabling access by PHAs to private debt and equity to address immediate and
long-term capital needs. The Demonstration is also designed to test the extent to which residents
have increased housing choices after the conversion and the overall impact on the subject
properties. Collectively, projects that convert their form of assistance under the Demonstration
are referred to as “covered projects.”

HUD’s Office of Recapitalization within the Office of Housing is responsible for the day-to-day
operations of the Demonstration. However, since the Demonstration is available to program
participants under the Office of Public and Indian Housing (PIH) and the Office of Multifamily
Housing Programs, both of these offices are also directly responsible for the implementation of
the Demonstration. Specifically, we audited the first, or public housing, component of the
Demonstration. Under the first component, PIH’s role in the Demonstration includes receiving
applications from PHAs that wish to participate in the Demonstration and reviewing the
applications, which includes evaluating the applications for completeness and feasibility. Upon
conditional approval of a PHA’s application, the PHA is assigned to the Office of
Recapitalization, which is responsible for monitoring the PHA’s progress toward closing and
providing feedback to assist PHAs in obtaining all required data to get to closing, including their
financing plan. If the PHA’s project units are converted to the project-based rental assistance
program, Multifamily’s Office of Asset Management is responsible for the ongoing monitoring
of the PHA’s units.




                                                 3
As of June 24, 2015, HUD had received 1,632 applications and closed on only 168 applications,
representing 17,841 units. The rehabilitation and new construction for the closed application is
typically expected to take between 12 and 24 months. Therefore, not enough progress had been
made for an effective evaluation of the Demonstration.

Our objective was to determine whether HUD had adequate controls over the Demonstration, to
include (1) an appropriate completion of a risk assessment that adequately evaluated the
following risks: (a) the need for additional administrative funding, (b) a determination of funding
level and computation of program funds, (c) site conditions and residents’ ability to return after
conversion, and (d) management and information systems capacity by participants; and (2) a plan
to reduce these risks to an acceptable level.




                                                 4
Results of Audit

Finding 1: HUD Did Not Complete an Adequate Front-End Risk
Assessment for the Rental Assistance Demonstration
HUD did not complete an adequate front-end risk assessment (FERA) for the Demonstration as
required. The FERA prepared by PIH was not timely as PIH completed the FERA nearly two
years after budgetary approval for the Demonstration and nearly one year after it began accepting
applications for the Demonstration, and did not sufficiently identify the risks that could disrupt
an effective implementation of the Demonstration or document a plan to reduce these risks to an
acceptable level. Additionally, Housing failed to clearly identify the risks related to its program
units or document its contribution to the FERA prepared by PIH via signature of Office of
Housing officials. These conditions occurred because HUD failed to place the proper priority on
conducting a timely and thorough FERA as required. As a result, HUD lacked assurance that
program risks were sufficiently identified and reduced to an acceptable level for an effective and
successful implementation of the Demonstration.

The FERA Conducted by PIH Was Not Timely
The FERA conducted by PIH was not completed in a timely manner. A FERA is a formal,
documented review by management to determine the susceptibility of a new or substantially
revised program or administrative function to waste, fraud, abuse, and mismanagement. Its
purpose is to detect conditions that may adversely affect the achievement of program objectives
and provide reasonable assurance that the following goals will be met: (1) safeguarding of
assets, (2) effectiveness and efficiency of operations, (3) reliability of financial reporting, and (4)
compliance with applicable laws and regulations. Further, according to HUD’s requirements, 2 a
FERA is a management tool to ensure that risks have been identified and a plan for reducing
these risks to an acceptable level is in place before the implementation of a new or substantially
revised program or administrative function. A review of the FERA documentation indicated that
the FERA was completed by PIH nearly a year after HUD began accepting applications for the
Demonstration on September 24, 2012. The FERA certificate of completion was signed by the
PIH program manager, Deputy Assistant Secretary, and Assistant Secretary in August and
September of 2013.

The Deputy Director of the Office of Recapitalization stated that the timing of the appropriations
language for the Demonstration presented a challenge for the development of the FERA. It
explained that Congress provided a 3-year window for accepting applications for conversion
under the first component, which required HUD to take immediate action to begin designing and
implementing the Demonstration. Further, HUD explained that substantial alterations to the




2
    HUD Handbook 1840.1, REV-3, section 8-1



                                                   5
Demonstration from the revision of the program notice (Notice PIH-2012-32, REV-1) extended
the drafting period for the FERA as HUD had to ensure that any new risks presented by the
revised notice were included in the FERA. However, the HUD Secretary’s memorandum in the
Departmental Management Control Program handbook stresses that the time to initiate the
conduct of a FERA is when there is budgetary approval for a new or substantially revised
program and that it is critical that the FERA process achieve meaningful and useful results. The
budgetary approval for the Demonstration occurred on November 18, 2011, nearly two years
prior to the completion of the FERA.

The FERA Conducted by PIH Did Not Sufficiently Identify All Risks
The completed FERA did not identify all of the risks that could disrupt an effective
implementation of the Demonstration. The Departmental Management Control Program
handbook requires the program office to evaluate program risk, addressing each of the specific
minimum risk factors listed in section 8-6(C) of HUD Handbook 1840.1, REV-3, and any others
that apply and providing a narrative for each with sufficient detail to justify conclusions. The
program office is required to include responses to the subcategories and questions for each factor
in the narrative. For each factor, the program office is required to (1) identify risks; (2) analyze
the possible effects of the risk; (3) estimate the risk’s significance—risks should be ranked on a
scale that captures their importance, severity, or dollar amount; (4) assess the likelihood of its
occurrence—risks should be ranked on a scale of frequency or probability; (5) explain how the
risk will be managed (controlled); and (6) identify actions to be taken. 3 Further, the HUD
Secretary’s memorandum in the Departmental Management Control Program handbook 4 stresses
the importance of performing a FERA as an excellent way for program managers to assess risks
and establish internal controls before implementing a new or substantially revised program or
administrative function. According to the memorandum, the process helps to ensure that risks
are taken by choice and not by chance and are acknowledged by management as necessary to
achieve programmatic goals within available resource levels.

HUD stated that it included Notice PIH-2012-32, REV-1, as an exhibit in the FERA to document
the program rules and risk reduction strategies it had put into place for the Demonstration.
While this information is useful as a reference for documenting risk reduction strategies, it does
not relieve HUD of the requirements to identify and discuss the program risk in the FERA
document. At a minimum, if the risk was significant enough to warrant risk reduction strategies
in the notice, it should have been documented and discussed in the FERA document.

The following are examples of risks not identified in the FERA, which require a plan to ensure
that the risks are at an acceptable level. Specifically,




3
    HUD Handbook 1840.1, REV-3, paragraph 8-6(A)
4
    HUD Handbook 1840.1, REV-3, memorandum



                                                   6
The Need for Additional Administrative Funding
HUD was provided no administrative funding to implement the Demonstration and was expected
to use the existing organizational structure and management information systems to implement
and monitor the Demonstration.

According to HUD, the congressional intent was that the offices with the programs most affected
would provide for salaries and expenses. HUD believed this was the intent because otherwise
Congress would have provided additional administrative funds to run and manage the
Demonstration since the Demonstration language was part of the Appropriations Act. However,
based on our review, the specifics of this need for additional administrative funding were not
discussed in the FERA. This risk may negatively affect the existing organizational structure by
using limited resouces for salaries and expenses from other functions to implement and monitor
the Demonstration. 5

Determination of Funding Level and Computation of Program Funds
The Demonstration statute required that HUD provide no financial assistance after the
conversion except the combined amount of operating funds and capital funds provided.
However, the legislation did not specify the fiscal year HUD was to use in determining the
funding level and did not prescribe the method of computing the operating and capital funds.
We identified a risk that the lack of specific direction in the legislation could directly affect the
level of total funding available for the Demonstration as well as the level of assistance to tenants,
depending upon HUD’s implementation of the computations. HUD did not discuss the risks
presented by the lack of specific legislative direction for determining the funding level for the
Demonstration in the FERA. 6

HUD stated that the FERA acknowledged the risk of funds controls and the concerns relating to
congressional intent through a rigorous discussion of how HUD interpreted the funding
provisions and how it devised and implemented controls surrounding those funding
mechanisms. Further, HUD stated that by providing the funds control plans as exhibits in the
FERA, containing language indicating how HUD had interpreted and controlled for
congressional intent, HUD clearly specified the risk and the internal controls implemented.
While the funds control plans documented HUD’s implementation of the funding provisions, we
believe that the FERA narrative did not discuss the risks presented by the lack of specific
legislative direction.




5
  HUD Handbook 1840.1, REV-3, chapter 8, requires the consideration of risks related to the adequacy of the
appropriation under Risk Factor 9, Funding and Funds Control Plan. Specifically, A FERA must consider whether
funding resource requirements have been identified for all program and administrative costs, the adequacy of
funding resources had been assessed, and contingency plans were available for meeting any funding shortfalls.
6
  HUD Handbook 1840.1, REV-3, chapter 8, requires the determination of potential for risk because of the way the
statutory or regulatory authority is worded under the Risk Factor 1, Legislative Language, scope of written authority.
Specifically, a FERA must consider whether legislative authority or regulations are broad or vague and require
consideration of whether legislative intent is clear.



                                                          7
Site Conditions and Residents’ Ability To Return After Conversion
The Demonstration statute requires that the conversion of assistance under the Demonstration not
be the basis for rescreening or termination of assistance or eviction of any tenant family in a
property participating in the Demonstration and such a family must not be considered a new
admission for any purpose, including compliance with income-targeting requirements. One of
the main concerns of Congress related to the Demonstration is the impact on housing
opportunities for the low-income public housing residents affected by the Demonstration.
Another risk is that tenants at the low-income project would not or could not reside in the
converted projects due to possible arbitrary policy decisions of participating PHAs. While tenant
rights are documented in Notice PIH-2012-32, REV-1, effective July 2, 2013, the FERA must
document how HUD plans to enforce those rights and ensure that PHAs comply with them. 7

The notice documented HUD’s decision to conduct a management override of requirements
regarding deconcentration of poverty, impacted sites, and expanding housing and economic
opportunity. Effectively, HUD’s management override allowed Demonstration projects on
racially and economically impacted sites. The FERA did not provide the means for reducing the
risk of projects’ being located on economically and racially impacted sites or discuss HUD’s
conclusion that this was a low-risk issue.7

HUD explained that although it was considered to be a risk, the determination to waive site
selection and neighborhood review standards for preserving in-place public housing units was
not considered to be a high or medium risk for the purposes of the FERA. Specifically, HUD
stated that since the Demonstration was designed to preserve affordable housing and provide
more stable long-term funding, such waivers were appropriate. Further, HUD determined that
the risk of continuing such housing was no greater than the risk of running existing public
housing units as those units were already in place. Instead, HUD determined that the
Demonstration reduced risk for existing sites by requiring capital needs to be addressed and
ensuring long-term preservation of the existing sites through the Demonstration milestone
submissions, use agreement, and associated contractual documentation.

While we agree with HUD’s explanation regarding the concern relating to projects’ remaining on
their existing site after the conversion when the site is located in an economically and racially
impacted geographic location at the time of conversion, the discussion of such risk was not
included in the completed FERA. The purpose of conducting a FERA is to ensure that risks have
been identified and a plan for reducing these risks to an acceptable level is in place before
implementation. Although HUD determined that the risk for this issue was not a high or medium
risk that would require risk reduction strategies, the FERA process requires an evaluation of all
risks and requires HUD to provide a narrative for each risk factor, including responses for all
subcategories and questions in that narrative. 8



7
  HUD Handbook 1840.1, REV-3, chapter 8, requires the consideration of risks that have been the focus of special
attention; for example, special interest exhibited by Congress or media attention under Risk Factor 15, Special
Concerns or Impacts.
8
  HUD Handbook 1840.1, REV-3, chapter 8, section 6-A



                                                         8
Management and Information Systems Capacity by Participants
We identified a risk that PHAs with ineffective management may have difficulty in properly
managing the conversion process, negatively affecting the chances for a successful conversion.
Likewise, PHAs with ineffective management information systems may not be able to provide
relevant and reliable information to use in evaluating the demonstration. The FERA did not
discuss the risks of PHAs with management capacity and operating problems participating in the
Demonstration. Also, the FERA did not prescribe a means to reduce the risk for substandard
performing PHAs or PHAs with ineffective management information systems that may not be
able to provide relevant and reliable information to evaluate the Demonstration. HUD was
required to identify in the FERA what risks are presented by these PHAs and what steps HUD
planned to take to reduce those risks. 9

HUD stated that PHA management information systems were not considered to be a high or
medium risk because before conversion, controls were put into place to ensure that useful and
accurate data were submitted using established systems and methods. Regardless of whether this
issue was considered a high or medium risk, the FERA must have identified this issue as a risk.
The FERA process requires HUD to evaluate all risks and provide a narrative for each risk
factor, including responses for all subcategories and questions in that narrative. 10 An example of
the importance of this issue is documented in HUD Office of Inspector General (OIG) audit
report 2013-PH-0004. That report documented HUD OIG’s review of HUD’s experience with
its Moving-to-Work Demonstration program and concluded that in more than 15 years since the
program was implemented, HUD had not been able to show whether the program had met its
objectives. This conclusion was based in part on the lack of verified data from participating
agencies.

Housing Failed to Clearly Identify Its Risks and Document its Contribution to the FERA
Program managers are responsible for performing FERAs for new or substantially changed
programs or administrative functions that fall within their program area. 11 However, Housing
did not conduct its own FERA for the Demonstration, or ensure that program risks specific to
Housing were clearly identified in the FERA prepared by PIH, and a plan for reducing those
risks to an acceptable level was in place to promote an effective and successful implementation
of the Demonstration.

The Director of the Office of the Chief Financial Officer’s (OCFO) Risk Management Division
explained that each program office is required to submit a FERA identifying the risks for



9
  HUD Handbook 1840.1, REV-3, chapter 8, requires the consideration of whether procedures are in place to
accurately document program outputs and outcomes, establish program goals, and hold business partners
accountable for these goals under Risk Factor 13, Documentation. Further, under Risk Factor 15, Special Concerns
or Impacts, the FERA must consider the risks that have been the focus of special attention; for example, special
interest exhibited by Congress or media attention.
10
   HUD Handbook 1840.1, REV-3, chapter 8, section 6-A
11
   HUD Handbook 1840.1, REV-3, paragraph 8-3(B)



                                                        9
programs that fall within its area based on the requirements in HUD Handbook 1840.1. The
Risk Management Division did not receive a FERA from Housing for the Demonstration.
However, the OCFO Director further explained that in circumstances where multiple program
offices have shared responsibilities and share one FERA, each program office’s specific risks
should be clearly denoted within the FERA and each program office should provide appropriate
signature approval of the FERA.

HUD explained, via the Deputy Director of the Office of Recapitalization, that the FERA
prepared by PIH addressed risks to all of HUD, including Housing. HUD further explained that
Housing had significant input in the process and that the OCFO review and approval of the
FERA included the assessment of risks pertaining to PIH, Housing, and HUD in total. The
FERA was led by PIH because the Demonstration was managed by PIH when the FERA started
in 2012. However, HUD stated that future risk assessments of the Demonstration would be led
by Housing, with similar input from other participating offices.

While a number of the risks identified in the FERA were applicable to both program offices, we
agree with the OCFO’s explanation that each program office is required to clearly identify the
risks for programs that fall within its area, and provide appropriate signature approval of the
FERA to comply with the requirements of Handbook 1840.1.

A Revised Notice Also Requires Reexamination of FERA
As additional support requiring the need for a reexamination of the FERA, HUD issued a revised
program notice (PIH 2012-32, REV-2) on June 15, 2015, that provides program instruction for
the Demonstration. HUD Handbook 1840.1, REV-3, requires the program office to reexamine
an approved FERA when events occur that potentially affect a program’s risks or planned
internal control techniques. These events may be changes in funding or staffing levels,
administrative practices, etc. 12 The revision of the Demonstration notice represents a change in
administrative practices for the Demonstration, thus triggering this requirement.

If any proposed change increases the level of risk, the program office must revise the FERA and
identify the control techniques to address new or increased risks.
HUD stated that it was working on an annual update to the FERA.

Conclusion
Because PIH failed to place the proper priority on conducting a timely and thorough FERA and
Housing failed to clearly identify the risks related to its program units, the FERA’s effectiveness
was lessened, and it was not used as a tool to ensure that risks that could lead to a possible
disruption of the successful implementation of the Demonstration had been identified and a plan
for reducing those risks to an acceptable level was in place before implementation.




12
     HUD Handbook 1840.1, REV-3, paragraph 8-4(H)



                                                    10
Recommendations
We recommend that the Office of Public and Indian Housing

       1A.    Reexamine and modify its completed FERA for the Demonstration to ensure that
              risks, including those identified in this finding, are adequately identified and a
              plan for reducing the risks to an acceptable level is in place to promote an
              effective and successful implementation of the Demonstration.

We recommend that the Office of Housing

       1B.    Review the existing FERA prepared by PIH and modify it to ensure that risks
              specific to its program units are adequately identified and a plan for reducing
              those risks to an acceptable level is in place to promote an effective and
              successful implementation of the Demonstration and ensure that its contribution
              to and approval of the FERA is documented via signatures of the proper Office of
              Housing officials.




                                               11
Scope and Methodology
We conducted the audit from November 2014 through June 2015 at HUD headquarters in
Washington, DC, and the Knoxville, TN, HUD OIG office. The audit covered the period
September 2012 through September 2014 but was expanded as necessary.
To accomplish our objective, we
   •   Reviewed applicable laws, regulations, and relevant HUD program requirements,
       including Notice PIH-2012-32, REV-1; Notice PIH-2012-32, REV-2; and Demonstration
       legislation, HR 2112;
   •   Interviewed PIH, Housing, Recapitalization, and other program staff to obtain an
       understanding of the controls significant to the audit objective;
   •   Reviewed HUD Handbook 1840.1 to determine FERA requirements;

   •   Reviewed the FERA and applicable attachments prepared by PIH for the Demonstration
       to determine whether it adequately identified risks and documented the plans to reduce
       the risks that could affect a successful implementation of the Demonstration.
The records reviewed were not computer generated; therefore, an assessment of data reliability
was not applicable.

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.




                                                12
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:

•   Controls over the effectiveness and efficiency of operations.
•   Controls over compliance with applicable laws and regulations.

We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

•   The FERA completed by PIH for the Demonstration did not adequately identify and
    document the plans to reduce all of the risks that could affect a successful implementation of
    the Demonstration (see finding 1).
•   Housing did not ensure that program risks specific to its program units were adequately
    identified and a plan for reducing those risks to an acceptable level was in place to promote a
    successful implementation of the Demonstration, or document approval signatures of Office
    of Housing officials for the FERA prepared by PIH (see finding 1).




                                                  13
Appendixes

Appendix A
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               14
Ref to OIG   Auditee Comments
Evaluation




                          15
                         OIG Evaluation of Auditee Comments


Comment 1   HUD provided additional clarification in its response but ultimately agreed with
            the conclusions and recommendations in the report. While HUD provided a
            positive response to the report it was not responsive to implementing the risk
            assessment program as mandated in the statute and HUD Handbook. The
            response demonstrates that PIH and Housing did not comply with the risk
            assessment process for identifying, analyzing, and reducing all of the risks. OIG
            recommended essentially that the Department Offices of PIH and Housing each
            re-examine the risk assessment to identify all risks in compliance with HUD’s
            requirements.
            HUD stated that it agreed with the risks OIG identified and will add them to the
            updated FERA. Nonetheless, HUD Handbook 1840.1 provides in section 2-3,
            that management should be comprehensive in its identification of risks and should
            consider all significant interactions between the organization and other parties as
            well as internal factors at both the organization and department level. Our report
            provided some examples of risks not considered but did not identify all the risks
            not identified. The risks identified in the report were presented to demonstrate the
            prior FERA effort was incomplete and needs to be re-examined by both Housing
            and PIH. Therefore, recommendations included in this report should be
            implemented.




                                              16