Office of the Chief Financial Officer
Washington, DC
Interim Report on HUD’s Internal Controls Over
Financial Reporting
Office of Audit, Financial Audits Audit Report Number: 2015-FO-0002
Division, Washington DC December 8, 2014
2
To: Bradford Huther, Chief Financial Officer, F
/s/
From: Thomas R. McEnanly, Director, Financial Audits Division, Washington DC, GAF
Subject: Interim Report On HUD’s Internal Controls Over Financial Reporting
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) interim assessment of HUD’s internal controls over financial reporting.
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
202-402-8216.
Audit Report Number: 2015-FO-0002
Date: December 8, 2014
Interim Report On HUD’s Internal Controls Over Financial Reporting
Highlights
What We Audited and Why
We are required to audit the consolidated financial statements of the U.S. Department of Housing
and Urban Development (HUD) annually in accordance with the Chief Financial Officers Act of
1990 as amended. Our objectives were to evaluate HUD’s internal controls over financial
reporting and compliance with applicable laws, regulations, and government wide policy
requirements and provisions of contracts and grant agreements. OMB granted HUD an
extension to March 1, 2015 to issue its financial report. At the time the extension was granted,
our review of the objectives was nearly complete. We determined it would be beneficial to
modify the report’s scope, and therefore, we are issuing this audit report to provide an interim
assessment of HUD’s internal controls over financial reporting and compliance. Our final report
on HUD’s internal controls over financial reporting and compliance, and our opinion on the fair
presentation of HUD’s principal financial statements will be issued by March 1, 2015.
What We Found
Our interim assessment disclosed 11 findings. The most significant findings relate to (1) CPD’s
formula grant accounting not in compliance with GAAP, (2) continued weaknesses in PIH’s cash
management process, (3) lack of validation of grant accrual estimates, and (4) HUD’s continued
financial management system weaknesses. This report is an interim report on internal controls
over financial reporting.
The findings have root causes stemming from weaknesses in HUD’s internal controls which
have been identified and reported in previous years. These weaknesses are due to HUD’s
inability to establish a compliant control environment, implement adequate systems, recognize
required changes, and identify appropriate accounting principles and policies.
What We Recommend
Current and prior-year recommendations are included after each finding and in the Followup on
Prior Audits section of this report. Most significant are those in which we recommend that HUD
(1) transition at least $423 million in excess Section 8 funding held in public housing agencies’
net restricted asset accounts to HUD, (2) validate its grant accrual estimates to ensure reasonable
and accurate financial reporting, and (3) review and if necessary deobligate $237.8 million in
excess obligations.
Table of Contents
Background and Objectives ....................................................................................3
Results of Audit ........................................................................................................4
Finding 1: CPD’s Formula Grant Accounting Did Not Comply With GAAP,
Resulting in Misstatements on the Financial Statements .............................................. 4
Finding 2: Weaknesses in PIH’s Cash Management Process Continued To Effect
Financial Reporting and HUD’s Compliance With Treasury Requirements ............. 7
Finding 3: HUD’s Grant Accrual Estimates Were Not Validated ............................ 13
Finding 4: Financial Management System Weaknesses Continued To Challenge
HUD .................................................................................................................................. 17
Finding 5: Weaknesses in HUD’s Administrative Control of Funds System
Continued......................................................................................................................... 23
Finding 6: HUD Continued To Report Significant Amounts of Invalid Obligations
........................................................................................................................................... 29
Finding 7: HUD’s Financial Management Governance Structure and Internal
Controls Over Financial Reporting Were Ineffective ................................................. 39
Finding 8: Weaknesses in HUD’s Rental Housing Assistance Program Monitoring
Continued ......................................................................................................................... 46
Finding 9: HUD Did Not Substantially Comply With the Federal Financial
Management Improvement Act ..................................................................................... 51
Finding 10: Despite Substantial Progress, HUD Did Not Fully Comply With the
Antideficiency Act ........................................................................................................... 54
Finding 11: HUD Did Not Comply With the HOME Investment Partnership Act . 56
Scope and Methodology .........................................................................................58
Followup on Prior Audits ......................................................................................60
Appendixes ..............................................................................................................76
A. Schedule of Funds To Be Put to Better Use ............................................................ 76
B. Departmentwide Obligation Review – Schedule of Recommended Deobligations
..................................................................................................................................... 77
C. Federal Financial Management Improvement Act Noncompliance, Responsible
Program Offices, and Recommended Remedial Actions ...................................... 78
D. Auditee Comments and OIG’s Evaluation ............................................................. 80
Background and Objectives
HUD OIG is required by law and OMB regulation1 to audit the U.S. Department of Housing and
Urban Development’s (HUD) and its component agencies, the Federal Housing Administration
(FHA) and the Government National Mortgage Association (Ginnie Mae) principal financial
statements. Our objectives of the financial statement audits are to express an opinion on the fair
presentation of HUD’s principal financial statements and provide a report on internal controls
over financial reporting. We are also required to provide a report on compliance with selected
provisions of applicable laws, regulations, and government policies that may materially affect the
consolidated principal financial statements.
On November 4, 2014, OMB granted HUD an extension to March 1, 2015 so Ginnie Mae could
complete preparing its records for audit and HUD could finalize its consolidating financial
reporting after the Ginnie Mae audit was completed. At the time the extension was granted, our
review of HUD’s internal controls over financial reporting and compliance was nearly complete
and a draft report on internal controls over financial reporting and compliance had been issued to
HUD. OIG, after consultation with HUD, determined it would be beneficial to modify the
report’s scope to allow HUD staff to begin working on the audit resolution process. Therefore,
we are issuing this audit report to provide an interim assessment of HUD’s internal controls over
financial reporting. Our final report on HUD’s internal controls over financial reporting and
compliance, and our opinion on the fair presentation of HUD’s principal financial statements will
be issued by March 1, 2015.
This report is intended solely for the use of HUD management, OMB, and Congress. However,
it is a matter of public record, and its distribution is not limited.
1
Chief Financial Officers (CFO) Act of 1990, as amended by the Government Management Reform Act of 1994
and implemented by Office of Management and Budget (OMB) Bulletin 14-02, Audit Requirements for Federal
Financial Statements.
3
Results of Audit
Finding 1: CPD’s Formula Grant Accounting Did Not Comply
With GAAP, Resulting in Misstatements on the Financial
Statements
HUD’s Office of Community Planning and Development’s (CPD) formula grant
program accounting continued to depart from GAAP due to its use of the first in, first
out (FIFO) method for disbursing obligations. As reported in fiscal year 2013, the
information system used, Integrated Disbursement Information System (IDIS) Online, a
grants management system, was not designed to comply with Federal financial
management system requirements. Further, HUD’s plan to eliminate FIFO from IDIS
Online would apply only to fiscal year 2015 and future grants and not fiscal years 2014
and earlier. As a result, budget year grant obligation balances continued to be misstated,
and disbursements made using an incorrect U.S. Standard General Ledger (USSGL)
attribute resulted in additional misstatements. Due to the inability of IDIS Online to
provide an audit trail of all financial events affected by the FIFO method, the financial
affects of FIFO, which were applied to its consolidated financial statements, could not
be quantified. Further, the amount and pervasiveness of the funds susceptible to the
FIFO method and the noncompliant internal control structure in IDIS Online, the
combined statement of budgetary resources and the consolidated balance sheet were not
prevented from being materially misstated. The effects of not removing the FIFO
method retroactively will continue to have implications on future years’ financial
statement audit opinions until the impact is assessed to be immaterial.
IDIS Online’s Accounting for Transactions Departed From GAAP and Accounting
Standards
Due to inadequate budget controls and a disregard for USSGL attributes at the transaction level
when making disbursements for CPD’s formula grant disbursements, the use of the FIFO
method was
A departure from Federal financial accounting standards and GAAP,
Noncompliant with budgetary internal control requirements, and
Noncompliant with the overall conceptual framework established by the Federal financial
management laws and guidance issued by the standard setters.
During fiscal years 2014 and 2013, $4.8 billion and $5.1 billion, respectively, in disbursements
were susceptible to this FIFO method and were reported in HUD’s consolidated financial
statements. Also during this time, $10.1 billion and $10.4 billion, respectively, in undisbursed
obligations were impacted. These material amounts, which impact the combined statement of
budgetary resources and consolidated balance sheet, were not presented in conformity with
GAAP.
4
CPD Has Taken Steps To Eliminate the Use of FIFO for Fiscal Year 2015 and Future
Grants
Steps to eliminate the FIFO logic from IDIS Online are nearing completion. According to CPD
and its information technology services contractor, the required changes to IDIS would be
applied only to fiscal year 2015 and future grants during a three-phase process. Phases one and
two were scheduled to be completed by October 1, 2015. The first phase would eliminate the
FIFO method for fiscal year 2015 formula grants. By the end of the second phase, the
reengineering of IDIS by applying a non-FIFO method to future grants and by addressing the
receipt of grant funds and program income that could span multiple activities and grant years
will be completed. Phase three would involve the programmatic implementation of the system
changes, during which the program offices would work with the grantees. This phase was
expected to be completed by October 2017.
While CPD has taken steps to eliminate the FIFO logic for future grants, these steps would not
be sufficient to eliminate this deficiency as a material weakness and clear the basis for
qualification reported in the independent auditor’s report for fiscal year 2013 and future
independent auditor’s reports. Specifically, since the plan did not address fiscal year 2014 and
prior grants, there would continue to be a material amount of funding susceptible to FIFO logic.
The effects of not removing the FIFO methodology retroactively will have implications for
future years’ financial statement audit opinions until the impact is assessed to be immaterial.
We will continue to work with CPD and the Office of the Chief Financial Officer (OCFO) to
monitor the progress of HUD’s FIFO elimination plan. During the next fiscal year, we will
ensure that IDIS uses a non-FIFO method to disburse fiscal year 2015 CPD formula grant funds
and that there is an appropriate audit trail available for review.
Conclusion
We continue to report that the use of the FIFO method (1) departed from Federal
accounting standards and (2) was noncompliant with budgetary internal control
requirements and the overall conceptual framework established by the Federal financial
management laws and guidance issued by the standard setters. Specifically, the use of
FIFO by the information system, IDIS Online, made it noncompliant with Federal
financial management system requirements due to inadequate budget controls and the
misuse of USSGL attributes at the transaction level for CPD’s formula grant
disbursements. While steps are under way to remove the FIFO method, these changes
will be applied only for fiscal year 2015 and future grants, and will not be applied
retroactively. The effects of not removing the FIFO method retroactively will continue
to have implications on future years’ financial statement audit opinions until the impact
is assessed to be immaterial.
During fiscal year 2014, $4.8 billion in disbursements was susceptible to this FIFO method,
which is not in accordance with GAAP and will be reported in HUD’s consolidated financial
statements. Due to this material amount, the combined statement of budgetary resources and the
consolidated balance sheet were prevented from conforming to GAAP.
5
Recommendations
We recommend that the Assistant Secretary for Community Planning and Development
1A. Continue to work with CPD’s information technology services contractor and
OCFO to ensure that all three phases of the plan to bring IDIS into compliance
with GAAP and applicable Federal system requirements are completed as
scheduled.
1B. Conduct a formal analysis to determine (project) when the amount of
disbursements for fiscal years 2014 and earlier grants that are subject to FIFO will
no longer materially impact the financial statements.
6
Finding 2: Weaknesses in PIH’s Cash Management Process
Continued To Effect Financial Reporting and HUD’s Compliance
With Treasury Requirements
In fiscal year 2014, HUD attempted to bring its cash management process for the Section 8
Housing Choice Voucher program into compliance with GAAP and U.S. Department of the
Treasury requirements; however, weaknesses in the process continued to impact HUD’s
compliance with the requirements. To attempt compliance in fiscal year 2014, OCFO began
reporting financial activity related to the cash management process, but the activity was not
recorded in the general ledger completely, accurately, or in a timely manner. Additionally, the
Office of Public and Indian Housing (PIH) had begun transitioning most of the pre-cash-
management net restricted asset (NRA) funds; however, since it did not perform cash
reconciliations, public housing agencies (PHA) accumulated new NRA funds in excess of their
immediate disbursement needs. These issues were the result of HUD’s weak internal controls
over the cash management process, including the lack of an automated process. Since HUD’s
general ledger did not sufficiently capture cash management events and PHAs continued to hold
funds in excess of their immediate disbursement needs, HUD remained in violation of Treasury
cash management regulations, and the PIH prepayment financial statement line item reported on
HUD’s balance sheet was at high risk for misstatement.
HUD Did Not Recognize Significant Financial Events in the General Ledger Consistently,
Completely, Accurately, or in a Timely Manner
In fiscal year 2013,2 we first reported that HUD failed to properly account for significant
financial events arising from cash management in the general ledger. The most significant event
was the decision to transition pre-cash-management NRA back to HUD’s control. When we
brought this issue to HUD’s attention, it adjusted its 2012 and 2013 financial statements by
recording beginning and ending prepaid balances in 2012 and 2013 and recognizing the
difference as an expense.
In fiscal year 2014, we found that while HUD recorded some of the financial events resulting
from cash management in the general ledger and financial statements, HUD recorded them
through periodic manual adjustments to the general ledger, which were not performed
consistently or in a timely manner in accordance with Statements of Federal Financial Account
Standards (SFFAS) concepts 1 and 5, and SFFAS 1, Accounting for Selected Assets and
Liabilities. This resulted in the financial statements not accurately presenting the activity from
cash management as it occurred during the year. Further, HUD’s general ledger did not capture
these events at the transaction level in accordance with Federal Financial Management
Improvement Act (FFMIA). The financial events impacted are described below.
2
Audit report 2014-FO-0003, Supplemental Details To Support Our Report on HUD’s Fiscal Years 2013 and 2012
(Restated) Financial Statements, issued December 16, 2013
7
HUD offsets of pre-cash-management NRA to transition funds back to HUD. HUD
performed offsets against PHAs’ monthly Housing Choice Voucher program funding in
fiscal year 2014 to transition pre-cash-management NRA accumulations to HUD-held
reserves. These adjustments to the general ledger to account for the activity were not
consistent or timely. PIH began performing monthly offsets on June 1, but adjustments
in the general ledger and financial statements totaling $413 million were not performed
until August 2014. PIH also performed an offset of $29 million on September 1, but
OCFO did not record this activity in the general ledger and financial statements until after
the close of the fiscal year.3
HUD offsets of post-cash-management NRA to transition funds back to HUD. Starting in
fiscal year 2012, PIH performed quarterly cash management reconciliations to identify
new excess accumulations held in PHA NRA accounts, which were collected through
offsets against future monthly Housing Choice Voucher program disbursements. If PIH
identifed a shortage, it netted an additional disbursment with the monthly disbursement,
assuming that the PHA had the budget authority to cover the shortage. However, HUD
did not adjust its general ledger to reflect these financial events. As of September 30,
2013, PIH had identified an excess of $33 million and a shortage of $27 million;
however, OCFO did not adjust the general ledger and financial statements to reflect these
transactions.
PHA expenditures and accumulations during fiscal year 2014. HUD allowed PHAs to
spend excess funds held in their NRA accounts on eligible housing assistance payment
expenses during fiscal year 2014. However, these expenditures were not recorded in
HUD’s general ledger or balance sheet in a timely manner as a reduction of the advance.
Further, in fiscal year 2014, PHAs accumulated additional excess funding in their NRA
accounts because PIH did not perform cash reconciliations to identify and offset the new
excess accumulations. OCFO did not recognize this increase in the general ledger and
financial statements as it occurred throughout the year, which netted to a $314 million
increase.
HUD’s Internal Controls Over the Cash Management Process Remained Weak
In fiscal year 2013, we reported that HUD failed to implement adequate internal controls over
the cash management process for $16.3 billion in annual disbursements to the Housing Choice
Voucher program to ensure complete, accurate, and reliable financial reporting as required by
OMB Circular A-123. In fiscal year 2014, the same internal control deficiencies existed for the
$17.3 billion disbursed.
3
This amount was included in the $343.8 million postclosing adjustment.
8
Reliance on PHAs and manual processes. PIH’s complex cash management process
remained manual because (1) the HUD Central Accounting and Program System
(HUDCAPS) operates on the U.S. Government fiscal year, while PHA funding is based on
calendar years and (2) PIH relied on PHAs to report their monthly Housing Assistance
Payment (HAP) expenses. The system limitation of HUDCAPS prevents HUD from
automating the cash management reconciliation process to identify accounts receivables and
accounts payables. Further, HUD could not determine PHA HAP expenses on its own.
Relying on PHAs is problematic because it does not allow for real-time reporting. For
example, the June 30, 2014, NRA report, which estimated HUD’s advance balance using
PHA-reported HAP expenses, was not complete and available for review until the beginning
of September. Since the information was delayed, PIH had to use extensive manual
processes to calculate expenditures, new excess fund accumulations, and offsets. PIH
performed these manual calculations outside HUD’s financial systems using Excel
spreadsheets and data from the Financial Assessment Subsystem (FASS), HUDCAPS, and
the Voucher Management System (VMS) for approximately 2,200 PHAs. Further, the Excel
spreadsheets were maintained on a shared drive, leaving the data unprotected.
HUD’s reliance on PHAs also complicated the 2014 transition of pre-cash-management
funding back to HUD because it could not rely on its calculations and demand that the funds
be transitioned. Instead, HUD had to work with many PHAs to agree upon a balance to be
transitioned back. This process further delayed the offset process and prevented PIH from
immediately establishing repayment agreements when PHAs could not provide the funds it
requested.
As a result of its reliance on PHAs, HUD had to use manual processes to account for all cash
management transactions, which did not allow it to record individual cash management
transactions in the general ledger at the transaction level, an FFMIA requirement. We
recommended that this process be automated in our prior-year report, and management
generally concurred. HUD was working on implementing a new system, the Next
Generation Management System (NGMS), which would contain a “Housing Choice Voucher
Payment Processing - Payment Calculation” module that may allow HUD to calculate PHA
expenses on its own. The NGMS team was working on a contract action that would bring in
a developer; however, HUD did not know how long this process would take or whether it
would be successful. PIH was also concerned with the availability of funding and, therefore,
would not propose a plan to address the recommendation without a commitment from HUD’s
senior management to ensure adequate funding. As of the date of this report, management
had not provided a sufficient action plan for how the recommendation would be
implemented.
9
Lack of Communication Between PIH and OCFO. PIH did not consult with OCFO before
implementing the cash management process or perform a front-end risk assessment4 before
implementation. PIH was drafting a front-end risk assessment. Since PIH and OCFO had
not established a basic understanding of the business process and the financial transactions
impacted by the cash management process, significant delays between the occurrence and
recognition of the financial events in the general ledger and financial statements continued.
While PIH attempted to provide transparency to OCFO during fiscal year 2014, OCFO did
not record adjustments recommended by PIH due to a lack of understanding of the business
process, the extensive manual processes involved, and the lack of transparency in the
methods used.
HUD Did Not Complete Cash Management Reconciliations or Transition Previously
Accumulated Moving To Work Funds, Allowing PHAs To Hold Funds in Excess of Their
Immediate Disbursing Needs
Since the cash reconciliation process was completely manual and PIH was already transitioning
pre-cash-management NRA, it did not have the resources to perform cash management
reconciliations. While PIH transitioned $443 million in pre-cash-management funds during
fiscal year 2014, new accumulations identified through cash reconciliations were not completed
and offset, allowing PHAs to continue holding substantial excess funds. Therefore, the yearend
balance was $423 million, only $129 million less than the reclassified fiscal year 2014 beginning
balance.5
Additionally, as we reported last year, HUD did not perform cash reconciliations for Moving To
Work (MTW) PHAs because HUD does not require them to report non-housing-assistance
expenses or funding. Due to the Paperwork Reduction Act, PIH reported that it could not require
such reporting. HUD planned to submit the Paperwork Reduction Act exemption to OMB. In
addition to its lack of reconciliations, HUD did not transition pre-cash-management
accumulations from MTW PHAs. In fiscal year 2014, HUD’s 39 MTW PHAs received $3.1
billion in Housing Choice Voucher program disbursements; however, HUD did not require them
to report excess accumulations. Therefore, HUD could not quantify, monitor, or track excess
accumulations for these PHAs. Although MTW PHAs are allowed to comingle funds, any funds
that are advanced to PHAs are subject to Treasury’s cash management rules, which do not allow
advances in excess of immediate disbursement needs. HUD agrees with this concept, and reports
it is now working to determine the best approach to ensure that MTW PHAs are not holding
funds in excess of their immediate disbursement needs. HUD had implemented only one cash
management tool for its MTW PHAs, basing monthly disbursements on previous-quarter
expenses instead of disbursing all of the annual funds in 12 monthly disbursements. While this
measure would reduce future accumulations, it would not transition previous MTW PHA
accumulations back to HUD or allow for the monitoring of future accumulations.
4
Required element of HUD’s management controls program to ensure that new or changed programs have taken
into consideration financial management requirements in designing their program’s operations
5
HUD planned to restate its 2013 ending balance as $552 million. This restatement is further explained later in this
report.
10
Since HUD did not monitor the accumulation of excess funds at MTW PHAs and did not
perform cash reconciliations, PHAs held funds in excess of their immediate disbursement needs,
which was a violation of Treasury’s cash management rules. Further, HUD could not ensure that
government funds were properly safeguarded against fraud, waste, and abuse and were used by
PHAs for eligible expenses.
HUD’s Financial Reporting Was Inadequate
In the cash management process, when approved transactions were recorded in HUDCAPS,
corresponding entries were not generated and posted to the appropriate general ledger accounts.
Consequently, HUD had to make significant manual adjustments to the general ledger that were
not recorded in a timely manner or easily traceable to the transaction source, resulting in an
inadequate audit trail and financial statements that did not accurately reflect the financial events
occurring from PIH’s cash management process as they occurred.
Further, since the cash management process was not automated and relied on PHA-reported
expenses, HUD had to estimate PHA HAP expenses for 2 months to determine its fiscal yearend
prepayment balance on the financial statements. This situation was problematic because since
PHAs spent more than $1 billion each month, even a slight deviation in spending patterns would
result in a significant impact on the final advance balance. In fiscal year 2014, OCFO planned to
perform a restatement of the balance sheet to reflect an increase in the PIH prepayment line item
for fiscal year 2013 in the amount of $100 million. Since there were approximately 2,200 PHAs
in the program, it was likely that there would always be deviations among monthly expenses so
estimating fourth quarter expenses to determine this balance would likely lead to similar
restatements if the NRA balance remained material.
Lastly, since HUD did not track MTW PHA accumulations, OCFO could not properly account
for them in its general ledger and financial statements as a prepayment. As a result, the PIH
prepayment financial statement line item reported on HUD’s balance sheet was at high risk for
misstatement.
Conclusion
HUD’s internal controls over the cash management process remained inadequate to ensure
complete, accurate, and reliable financial reporting as required by OMB Circular A-123. As a
result, in fiscal year 2014, HUD did not record significant financial activity in the general ledger
and financial statements completely, consistently, accurately, or in a timely manner. HUD’s
yearend PIH prepayment balance was also at risk of misstatement. Further, HUD’s cash
management process remained inadequate to ensure compliance with Treasury’s cash
management rules because while PIH transitioned pre-cash-management accumulations, it did
not perform cash reconciliations to prevent new accumulations. Non-MTW PHAs held $423
million in advances, and HUD could not quantify the amount held.
11
Recommendations
We recommend that the Assistant Secretary for Public and Indian Housing, in coordination with
the Chief Financial Officer,
2A. Establish procedures and a schedule for recording in a timely manner all events in
the cash management process that provide an adequate audit trail until HUD
implements a new system that automatically captures these events.
We recommend that the Assistant Secretary for Public and Indian and Housing
2B. Reinstate cash reconciliations as soon as possible and transition as much as $423
million that accumulated in PHA NRAs during fiscal year 2014.
2C. Complete the transition process for the remaining PHAs with pre-cash-
management NRA funds, including establishing repayment agreements if needed.
2D. Submit the Paperwork Reduction Act request to OMB for consideration to allow
the collection of information needed to monitor and track MTW accumulations.
If approved, make necessary changes to policies to require PHAs to report the
information needed to monitor and track accumulations.
2E. For MTW PHAs, develop a plan to quantify and aggressively transition back to
HUD funding that exceeds PHAs’ immediate disbursement needs.
2F. Establish procedures to track and monitor MTW accumulations to ensure that
PHAs do not hold excess funds in advance of their immediate disbursement
needs, to include the completion of cash reconciliations or a comparable tool.
2G. Issue guidance to MTW PHAs explaining Treasury’s cash management rules and
require them to report their unspent funds in the MTW annual report.
We recommend that the Chief Financial Officer
2H. Reclassify prepayments to accounts receivable once PIH determines the amount
of the prepayment that PIH cannot offset because PHAs have insufficient funds.
12
Finding 3: HUD’s Grant Accrual Estimates Were Not Validated
The Department did not validate its grant accrual estimates and CPD did not include grants that
were recorded and tracked in the Disaster Recovery Grant Reporting (DRGR) System in its
estimate. This was due to a lack of proper validation procedures in the Department’s estimation
methodologies, CPD excluding DRGR system grants in its methodologies, and a lack of relevant
grantee reporting. As a result, CPD’s fiscal year 2013 grant accrual estimate was materially
understated by at least $733 million. In addition, PIH and the Office of Housing could not
provide reasonable assurance that their assumptions were accurate.
HUD’s Fiscal Year 2013 Financial Statements Were Materially Misstated
In our report on HUD’s fiscal years 2013 and 2012 (restated) financial statements,6 we reported a
significant deficiency regarding HUD not recognizing liabilities arising from unpaid amounts
due from grant and entitlement programs. To address this deficiency, HUD implemented a grant
accrual policy during fiscal year 2014 and for the first time, prepared grant accrual estimates by
program area. Upon preparing estimates for fiscal year 2013 for inclusion in the comparative
fiscal years 2014 and 2013 financial statements, HUD determined that the necessary adjustments
to the fiscal year 2013 financial statements were material and agreed to restate its previously
issued financial statements.
CPD’s Grant Accrual Estimate Was Materially Understated
Our review of the CPD’s grant accrual estimate methodologies for its major grant programs
found that CPD did not include steps to validate its fiscal year 2013 grant accrual estimate
against subsequent grantee reporting as required by FASAB Technical Release 12, Accrual
Estimates for Grant Programs. To estimate its accrual, CPD used a key assumption, that its grant
accruals for the end of any reporting period were equal to the amount drawn down in IDIS for
the month following the reporting period. Specifically, the grant accruals reported on the
financial statements for the year ending September 30, 2013, equaled the IDIS drawdowns
processed in October 2013. CPD did not validate the accuracy of its estimate and the underlying
assumption for grant accruals. Our projection of results from a statistically valid sample
indicated that accruals should have been recorded for more than 1 month’s worth of
disbursements. Additionally, CPD did not include in its estimate disaster grants and
Neighborhood Stabilization Program grants that were recorded and tracked in the Disaster
Recovery Grant Reporting system (DRGR).
6
2014-FO-0003, Additional Details To Supplement Our Report on HUD’s Fiscal Years 2013 and 2012 (Restated)
Financial Statement, issued December 16, 2013
13
CPD did not validate its estimate or include grants reported in DRGR because these steps were
not included in its grant accrual estimation policy. In addition, grantees did not report relevant
information that would allow CPD to perform a validation. CPD indicated that it will consider
attaining adequate information from grantees; however, CPD noted that it would place an
additional burden on grantees citing the Paperwork Reduction Act. Since this was the first year
CPD had estimated accruals for grants, there was a high inherent risk that the estimate would be
inaccurate; however, CPD could have mitigated this risk by validating its fiscal year 2013
estimate.
As a result, CPD’s fiscal year 2013 grant accrual estimate of $333 million was materially
misstated. Based on a statistical sample of disbursements, we estimated that CPD’s grant accrual
estimate should have been at least $1,066 million.7 This misstatement resulted in a minimum of
$733 million in underreporting of liabilities on the balance sheet, program costs on the statement
of net cost, and appropriations used on the statement of changes in net position as of the
reporting date. CPD followed the same methodology to estimate its fiscal year 2014 grant
accruals. We were unable to test the validity of its fiscal year 2014 estimate; however, because
the same assumptions and data sources were used, we believe there is a high risk that it was
misstated as well based on the results of our review of the fiscal year 2013 estimate.
PIH and Housing Did Not Validate Their Grant Accrual Estimates
Our review of PIH grant accrual estimate methodologies found that PIH also did not sufficiently
validate its grant accrual estimates. PIH used three separate validation methods; however, these
methods were not sufficient to satisfy the requirements of FASAB Technical Release 12
because8
The data used did not allow PIH to account for all potential grant accruals as of HUD’s
fiscal yearend.
The methods did not take into account when expenses were incurred by the grantee,
which is necessary to determine an accrual.
Additionally, the Office of Housing did not perform procedures to validate its estimate with
subsequent grantee reporting. PIH and Housing did not sufficiently validate their estimates
because they did not include effective validation procedures in their grant accrual estimation
methodologies.
7
Our grant accrual estimate has a one-sided confidence interval of 95 percent.
8
The reasons listed apply to one or more of the three methods; however, no one method has all of the reasons
applied to it.
14
As a result of not sufficiently validating their estimates PIH and Housing could not provide
reasonable assurance that the assumptions used were accurate and would result in a reasonably
accurate estimate. Both offices’ estimates were based on two major assumptions: (1) accruals
were based on the average monthly disbursement and were not affected by seasonal spending
patterns, and (2) there was a 30-day processing time for eligible expenses; therefore, accruals
represented 1 month of disbursements.
This was the first year either office had estimated grant accruals. Therefore, there was a high
inherent risk that the estimates would not be reasonably accurate, especially if primary
assumptions were not validated. PIH and Housing could have mitigated this risk by validating
their fiscal year 2013 estimates. If one or both of the assumptions were inaccurate, it could have
a significant impact on PIH’s and Housing’s estimates, which were $247 million and $249.6
million as of September 30, 2013, and $39 million and $45.6 million as of June 30, 2014.
Conclusion
CPD, PIH, and Housing did not validate their grant accrual estimates. In addition, CPD did not
include grants in DRGR in its estimation methodology. As a result, CPD’s grant accrual
estimate was materially understated. This misstatement resulted in a minimum of $733 million
in underreporting of liabilities on the balance sheet, program costs on the statement of net cost,
and appropriations used on the statement of changes in net position as of the reporting date.
Additionally, PIH and Housing could not provide reasonable assurance that the assumptions they
used to produce their estimates were accurate, resulting in a high risk that their estimates could
be misstated as well.
Recommendations
We recommend that the Office of the Chief Financial Officer
3A. Promptly communicate the restatement to those charged with governance,
oversight bodies, funding agencies, and others that are likely to rely on the
financial statements. This includes communication (1) in writing to the Congress,
OMB, Treasury, and GAO, and (2) to the public on the Internet pages where the
agency’s previously issued financial statements that were affected by the material
misstatement are published.
3B. Restate the fiscal year 2013 consolidated balance sheet and statement of net cost
and disclose the restatement and its effects on the previously issued financial
statements in the notes to the financial statements.
3C. Record an adjusting entry to report the revised amount of CPD’s grants payable
accrual based on the estimate produced in recommendation 3E.
3D. Review assumptions used to produce grants payable accrual estimates and
validate the input to the models used by each program office as stated in its grant
accrual policy.
15
We recommend that the Assistant Secretary for Community Planning and Development
3E. Determine the amount of adjustments needed to correct its misstated grants
payable accrual to ensure that the amount reported on the financial statements is a
reasonable estimate.
3F. Validate grants payable estimates and any assumptions used to produce the
estimates against subsequent grantee reporting.
3G. Incorporate into their grants payable accrual estimation methodologies steps to
appropriately validate grant accrual estimates and assumptions used to produce
the estimates against subsequent grantee reporting.
We recommend that the Assistant Secretary for Housing
3H. Validate grants payable accruals and any assumptions used to produce the
estimates in accordance with the provisions of FASAB Technical Release 12.
3I. Incorporate into their grants payable accrual estimation methodology steps to
appropriately validate grants payable estimates and assumptions used to produce
the estimates.
We recommend that the Acting Assistant Secretary for Public and Indian Housing
3J. Validate grants payable accruals and any assumptions used to produce their
estimates in accordance with the provisions of FASAB Technical Release 12.
3K. Incorporate into their grants payable accrual estimation methodology steps to
appropriately validate grants payable estimates and assumptions used to produce
the estimates.
16
Finding 4: Financial Management System Weaknesses Continued
To Challenge HUD
Although efforts were underway in fiscal year 2014 to address our concerns, HUD’s financial
management system limitations and deficiencies remained a material weakness. Existing
financial systems lack key functionality and in some cases, HUD does not have financial systems
in place to meet financial management needs. As a result of HUD’s inherent system limitations
and weaknesses, its financial management systems could not be readily accessed and used by
financial and program managers without extensive manipulation and excessive manual
processing. This situation negatively impacted management’s ability to perform necessary
financial management functions and efficiently and effectively manage financial operations of
the agency, resulting in lost opportunities for achieving mission goals and improving mission
performance.
HUD’s Financial Systems Lacked Key Functionality
Since fiscal year 1991, we have reported on the lack of an integrated core financial system. With
its September 2013 issuance of appendix D to Circular A-123, OMB made substantial changes to
the FFMIA framework that took effect in 2014, eliminating the term “core financial system.”
While the requirement for an integrated core financial system had changed, HUD’s financial
system weaknesses and limitations remained.
HUD’s financial statement consolidation process was costly and inefficient. To produce
auditable financial statements, HUD relied on extensive, costly, labor-intensive, and
inefficient procedures. These procedures caused errors in the consolidation process and
did not support management’s need for timely and accurate information. Due to a lack of
system functionality in HUD’s general ledger, HUDCAPS, HUD extracts data from
HUDCAPS into the Financial Datamart and then used a financial tool, Hyperion, to
manipulate HUDCAPS accounting data from the Financial Datamart to produce the
agencywide financial statements. This process required the extensive and time-
consuming manual reconciliation procedures of three different systems (HUDCAPS,
Financial Datamart, and Hyperion).
Additionally, to prepare and consolidate component entities’ financial statements and
notes, the Federal Housing Administration (FHA) and the Government National
Mortgage Association (Ginnie Mae) submitted financial statement information on
spreadsheet templates, which were entered into a software application. Consolidating
notes and supporting schedules had to be manually posted, verified, reconciled, and
traced. To overcome these system deficiencies when preparing its annual financial
statements, HUD relied on extensive compensating procedures that were costly and
inefficient. Because of the limitations of HUD’s legacy financial systems, errors in the
consolidation process occurred, and HUD’s financial systems did not support
management’s need for timely and accurate information.
17
CPD’s system configurations limited its ability to properly account for formula grant
transactions and comply with FFMIA. CPD uses IDIS Online to manage its formula grant
programs. IDIS Online does not comply with FFMIA system requirements due to system
configurations and limitations rendering the system unable to comply with Federal
accounting standards or USSGL at the transaction level.
CPD did not account for formula grant transactions using the specific identification
method in accordance with Federal accounting standards. Rather, IDIS Online was
configured to use the FIFO method to account for and disburse formula grant
obligations. CPD’s use of FIFO did not comply with Federal accounting standards and
had a significant impact on the accuracy of HUD financial statements.
Additionally, due to a lack of key data elements within the system, data from IDIS Online
were not posted to the general ledger system with required USSGL9 accounts. IDIS was
not configured to comply with USSGL requirements and post transactions to accurate
general ledger accounts.
HUD did not have a working property inventory system in place. HUD did not have a
functional, automated property management system during fiscal year 2014 (as required
by Title 40 of the United States Code), which set forth executive agencies’
responsibilities to maintain adequate inventory controls and accountability systems.
HUD implemented the Facilities Integrated Resource Management System (FIRMS) to
consolidate, automate, and provide reports on furniture, equipment, personal property,
and space and lease processes. While we have reported on FIRMS’ FFMIA
noncompliance since 2010, technical issues caused by a lapsed maintenance contract
have rendered FIRMS nonfunctional since 2012. Although HUD had planned to validate
the completeness and accuracy of its property inventory, it had not completed an
inventory as of September 30, 2014, due to resource constraints. HUD hoped to
complete the inventory by December 31, 2014. To achieve eventual FFMIA compliance
and meet business requirements regarding property management, HUD planned to
decommission FIRMS and use shared services provided by the Federal Aviation
Administration.
Legacy procurement applications did not meet FFMIA requirements and could not be
decommissioned due to longstanding data migration challenges. The HUD
Procurement System (HPS) and Small Purchase System (SPS) are legacy procurement
applications that do not meet Federal financial system requirements. We have reported
on the FFMIA noncompliance of HPS and SPS since 2006. The Office of the Chief
Procurement Officer (OCPO) worked to improve those applications and implement the
HUD Integrated Acquisition Management System (HIAMS) as a replacement application
9
The Department of Treasury publishes standard general ledger accounting requirements in the USSGL supplement
to the Treasury Financial Manual (TFM)
18
between fiscal years 2007 and 2011. OCPO began a phased implementation of HIAMS
in October of 2011. While the HIAMS implementation was completed in 2012, HUD
had been unable to decommission HPS and SPS as of September 30, 2014, due to
technical issues associated with the transfer of data from the legacy procurement
applications.
HIAMS and HUDCAPS did not interface for data related to payment processing
functions. In an audit conducted in fiscal year 2013,10 we found that HUD’s use of the
HIAMS application, as part of its integrated financial management system, did not
provide the agency with the data necessary to automate certain payment processing
functions. HIAMS and HUDCAPS did not interface to share data that allowed the
automation of a process to match invoices to obligations, receiving reports, and
acceptance data in HIAMS. Data should be used by both the financial and acquisition
systems to perform edits and validations in support of the payment process. Without
sharing these data, HUD could not automate processes to capture receipt document data;
record full or partial receipt and acceptance of goods and services by document line item;
match invoices to obligations, receiving reports, and acceptance data; validate for
duplicate invoices; or validate invoice period of performance and invoice delivery and
performance dates. While Federal requirements allow automated and manual processes
for certain functions, the manual processing of these functions was inefficient.
HUDCAPS did not have access to real-time SAM data on contractors. In an audit
conducted in fiscal year 2013,11 we identified internal control weaknesses in the way in
which HUDCAPS completed payment management functions. HUDCAPS did not
import or update vendor data directly with the General Services Administration’s System
for Award Management (SAM) application. Instead, users were required to review
vendor data through HUD’s Financial DataMart application. SAM is a Federal
Government computer system that combines Federal procurement systems and the
Catalog of Federal Domestic Assistance into one system. SAM includes the functionality
from the Central Contractor Registry (CCR). Both current and potential government
vendors are required to register in the CCR to be awarded contracts by the government.
The CCR validates the vendors’ information and electronically shares the data with the
Federal agencies’ finance offices to facilitate paperless payments through electronic
funds transfer. In addition, government contracting and grants officials responsible for
activities with contracts, grants, past performance reporting and suspension and
debarment activities utilize SAM to obtain up to the minute information. The Financial
DataMart interfaces with SAM daily, Monday through Friday, to receive and process the
10
2014-DP-0005, Information Systems Controls in Support of the Financial Statements Audit, issued April 30,
2014. This was a limited distribution report due to the sensitive nature of the information reported and was,
therefore, not made available to the public.
11
2014-DP-0003, Information Systems Control Weaknesses for Housing and Urban Development Accounting and
Programs System Audit, issued January 15, 2014. This was a limited distribution report due to the sensitive nature
of the information reported and was, therefore, not made available to the public.
19
various data files that update the CCR data. As a result, the interface between the
Financial DataMart and SAM is not real time and modifications to SAM are not reflected
in the Financial DataMart until the next day. Therefore, users of HUDCAPS did not have
access to real-time contractor data including information regarding the contractor status
to establish obligations and the validate payments. In addition, HUDCAPS did not have
an interface with the Financial DataMart that would allow HUDCAPS users to obtain the
information without exiting the application.
HUD Did Not Have Financial Systems in Place To Meet Financial Management Needs
In addition to weaknesses and limitations associated with HUD’s financial systems, HUD did not
have systems in place to meet its financial management needs.
HUD Lacked an effective cost accounting system. In fiscal year 2006, the U.S.
Government Accountability Office (GAO) reported12 that HUD’s financial systems did
not have the functionality to provide managerial cost accounting across its programs and
activities. HUD lacked an effective cost accounting system that was capable of tracking
and reporting the costs of HUD’s programs in a timely manner to assist in managing its
daily operations. This lack of functionality resulted in the lack of reliable and
comprehensive managerial cost information on HUD’s activities and outputs. This
condition rendered HUD unable to produce reliable, cost-based performance information.
PIH’s manual cash management processes did not allow recognition of financial
transactions or timely adjustments to PHA disbursements. PIH’s cash management
process was not automated. The cash reconciliation master file used to determine
appropriate adjustments was manual, maintained on an Excel spreadsheet on a shared
drive, and the integrity of the data was not properly protected or secured. The process to
perform adjustments to future disbursements in HUDCAPS was also manual. Due to
HUDCAPS’ functional limitations, HUD could not capture and recognize transactions
resulting from the quarterly reconciliations. With more than 2,200 PHAs that require a
quarterly reconciliation and potential adjustment, the amount of resources available was
limited. The lack of an automated process substantially increased the risk of error.
Further, a lengthy manual reconciliation process prevented timely and accurate
transaction recognition.
HUD did not adequately design or implement financial systems for the Section 108 and
Section 184 loan guarantee programs. Program offices relied on Excel spreadsheets and
Access databases to account for more than $2 billion in CPD loan guarantees and
approximately $4.1 billion in PIH loan guarantees. Without a financial system to record
detailed program transactions, HUD could not adequately monitor loan guarantee
programs. HUD was unable to monitor loan commitments and note issuances and
12
GAO-06-1002R, Managerial Cost Accounting Practices, dated September 21, 2006
20
repayment amounts, which could result in unreliable data affecting the financial
statements.
CPD’s Section 108 loan guarantee program did not have a system in place to perform its
financial management processes. There was no automated interface to obtain associated
grant data from the program application. Upon the delinquency or default of a
guaranteed loan, program staff had to request that OCFO accounting personnel manually
reduce the funds available, greatly increasing the risk of error.
PIH’s Section 184 loan guarantee program used a system of four separate Microsoft
Access database tables to process and maintain data on loan guarantees, defaults, and
lender claims. The program office had noted the risk of duplication across these
databases, and overpayments on claims had occurred due to payment duplication.
HUD Continued To Move Forward With the Implementation of a New Core Financial
System
HUD used five separate financial management systems to accomplish financial system functions.
We have reported on the lack of an integrated financial management system annually since 1991.
In 2013 with the issuance of appendix D, OMB made substantial changes to the FFMIA
framework, noting the need to transition from a burdensome framework that often led to costly,
ineffective, or inefficient technology solutions. OMB’s stated goal with the new framework was
to reduce the cost, risk, and complexity of financial system modernizations and to provide
agencies additional flexibility in their financial system modernizations. While we have long
reported on HUD’s lack of an integrated “core financial system,” the requirement to use an
integrated “core financial system” was removed, and with the issuance of appendix D, OMB
eliminated the term. Like many Federal agencies attempting to modernize their legacy financial
systems under the old framework, HUD’s attempts to implement a new financial system had
failed.
HUD had been working to replace its primary financial systems since fiscal year 2003. The
previous project, the HUD Integrated Financial Management Improvement Project (HIFMIP),
was based on plans to implement a solution that replaced two of the applications currently used.
In March 2012, work on HIFMIP was stopped, and the project was later canceled. HUD spent
more than $35 million on the failed HIFMIP project. In the fall of 2012, the New Core project
was created to move HUD forward in implementing a new financial system. The project would
migrate HUD’s financial transactions and systems to the U.S. Department of the Treasury,
Bureau of Fiscal Service’s Administrative Resource Center (ARC). Specifically, ARC would
provide support for (1) funds management, (2) purchasing, (3) accounts payable, (4) accounts
receivable, (5) cash management, (6) cost accounting, (7) the financial system, (8) the general
ledger, (9) financial reporting, (10) grants management, and (11) loans management. The project
includes three phases. Phase 1 of the project was separated into four different releases. Each
release defined a particular function that would be transferred to Treasury’s shared services
platform.
21
Release 1 transferred the travel and relocation functions to Treasury on October 1, 2014.
Release 2 would cover time and attendance and was scheduled for implementation on
February 8, 2015.
Release 3 was scheduled to start in the fourth quarter of fiscal year 2015 or the first
quarter of fiscal year 2016 and would cover migration of the key financial services of
OCFO. This process would include the migration of accounting system services
associated with budget execution, accounting, finance, data warehouse reporting, and an
interface solution.
Release 4 will address HUD’s grant and loan accounting systems. Details regarding this
release have not been finalized and there is no scheduled date for implementation.
Phase 2 of the project would address managerial cost accounting, budget formulation, and a fixed
assets system. Phase 3 would address the consolidation of FHA and Ginnie Mae as well as the
migration of the functionality of HUD’s Line of Credit Control System (LOCCS). Details
regarding phases 2 and 3 had not been finalized, and there was no scheduled date for
implementation.
Conclusion
Complete and reliable financial information is critical to HUD’s ability to accurately report on
the results of its operations to both internal and external stakeholders. During fiscal year 2014,
as in prior years, HUD made limited progress in modernizing its legacy financial systems. HUD
requires financial systems that can generate reliable, useful, and timely information for managing
current operations to make fully informed decisions and ensure accountability on an ongoing
basis.
Until these weaknesses are fully remediated, HUD’s ability to produce reliable, useful, and
timely financial information needed for accountability, performance reporting, and decision
making will remain a serious problem. Therefore, we will continue to monitor HUD’s progress
in addressing our concerns in this area.
Recommendations
Prior-year recommendations regarding this finding remain open and can be referred to in the
Followup on Prior Audits section of this report. We have no new recommendations in this
report.
22
Finding 5: Weaknesses in HUD’s Administrative Control of Funds
System Continued
HUD did not have a fully implemented and complete administrative control of funds system that
provided oversight of both obligations and disbursements. Our review noted instances in which
(1) disbursements were made before the legal point of obligation13 documented in the funds
control plan, which authorized the use of funds, (2) program offices did not follow HUD’s
administrative control of funds, (3) program codes were not included in funds control plans, and
(4) funds control plans were out of date or did not reflect the controls and procedures in place.
These conditions existed because of decisions made by HUD OCFO, failures by HUD’s
allotment holders to update their funds control plans and notify OCFO of changes in their
obligation process before implementation, a lack of compliance reviews in prior years, and
timing issues related to the issuance of obligating documents. As a result, HUD could not ensure
that its obligations and disbursements were within authorized budget limits and complied with
the Antideficiency Act (ADA).
Disbursements Were Made Before the Documented Point of Obligation
HUD used funds control plans to describe and document its administrative control of funds. Our
prior-year audit found that disbursements were made before the documented point of obligation14
required to legally contract and authorize the use of Section 8 tenant-based program funds. Our
review of disbursements at HUD’s Financial Management Center during fiscal year 2014 noted
that the condition still existed. We found that 50 disbursements totaling $634 million occurred
before the legal point of obligation documented in the applicable funds control plan.
According to the approved funds control plans for the Section 8 programs, the point of legal
obligation is the generation and signing of the PHA notification letter. However, obligations
were recorded in HUDCAPS before the notification letters were generated, reviewed, and
approved. Once obligations were recorded in HUDCAPS, disbursements could be made without
authorization. Our prior-year audit found that the disbursements were made before the point of
obligation because of delays in approving either the allotments or the distributions to the PHAs.
Due to the delays, the Financial Management Center did not have time to generate and mail the
PHA notification letters before the disbursement due dates. Rather than delay the payments to
the PHA’s, the Financial Management Center processed the disbursements before generating the
PHA notification letters.
13
GAO’s Principles of Federal Appropriation Law, Volume II, Chapter 7, provides legal requirements for recording
an obligation for contract. Specifically, it states there must be documentary evidence of a binding agreement
between an agency and another person (including an agency) that is in writing, for a purpose authorized by law,
executed before the end of the period of availability for obligation of the appropriation or fund used for specific
goods to be delivered, real property to be bought or leased, or work or service to be provided. The agreement must
be legally binding (offer, acceptance, consideration, made by authorized official).
14
The point of obligation represents when an agreement has been reviewed and approved by a government official
certifying that the legal requirements for using the funds were met.
23
PIH was implementing changes and updating its funds control plans to address this issue. It
planned to issue PHAs a notice of funding letter signed by the approving official before
processing disbursements, followed by a second notification letter with the funding enclosures
once the obligations were posted and verified. As of the date of this report, these changes had
not been implemented.
The Office of Multifamily Housing Programs Did Not Comply With the Administrative
Control of Funds Policies and Procedures
HUD’s Office of Multifamily Housing Programs did not ensure that it complied with OCFO’s
administrative control of funds policies and procedures15 in administering its Section 8 project-
based rental assistance program. The Office of Multifamily Housing (1) implemented
substantial changes to the Section 8 project-based program obligation process in fiscal year 2011
without the Chief Financial Officer’s approval16 and (2) could not provide the appropriate
obligating documents as stated in its 2011 funds control plan to support obligations and
disbursements complied with legal authorization and contract requirements.
A fiscal year 2011 funds control plan states that the program offices may use the “Funding
Notification for Field Office – S8 Budget Authority Change” (Section 8 budget authority
change) form or the “Funding Notification Letter” to notify the recipients. It states that the
funding notification letter is the point of obligation. This was a substantial change to the Section
8 Based program obligation process from prior years. However, there was no evidence to
support the plan had been approved by the OCFO. The OCFO had no record of either reviewing
or approving the plan. Neither Housing nor OCFO could provide evidence that the funds control
plan had gone through the legal and financial management analysis required and performed by
OCFO before a funds control plan is approved. Further, we found that the program office was
not following the 2011 funds control plan regarding the required documentation to support the
point of obligation. Instead of utilizing the funding notification letter, the program offices used
only the Section 8 budget authority change form to support the obligations. Without evidence of
OCFO’s review and approval, there is no assurance that the “S8 – Budgetary Authority Change”
form meets the minimum legal requirements to record and support an obligation as these
documents were not reviewed or signed by an authorized HUD official.
15
HUD’s policies requires the OCFO to review and approve funds control plans to ensure that internal controls for
processing obligations and disbursements comply with OMB Circular A-11, Budget Execution Manual,
requirements. Controls should provide evidence of government official’s authorization for each transaction where
program funds are used preventing or minimizing Antideficiency Act violations at all levels of the budget process.
16
Under Section 902 of the CFO Act of 1990, the agency CFO is charged with overseeing all financial management
activities relating to the programs and operations of the agency; developing and maintaining an integrated agency
accounting and financial management system, including financial reporting and internal controls; and directing,
managing, and providing policy guidance and oversight of agency financial management personnel, activities, and
operations.
24
We found that 146 obligations and disbursements (66 obligations and 80 disbursements) from a
sample of 247 (130 of obligations and 117 disbursements), or 58 percent, were not supported
with proper obligating documentation as prescribed in HUD’s administrative control of funds
requirements. These 146 obligations and disbursements had amounts totaling $22.3 million and
$9.5 million, respectively. The Office of Housing did not have required documentation to
demonstrate that the funds were obligated or disbursed in accordance with legal requirements,
such as (1) a signed notification of funding of Section 8 contract rents and funding form for
budgetary increases on HUD-administered contracts,17 (2) a signed transaction annual
contributions contract amendment for budgetary increases on project-based contract-
administered contracts,18 or (3) a signed agreement to enter into a housing assistance payments
contract renewal (if any) and the attached notification of funding.19
This condition occurred because Housing misunderstood the use of the Section 8 budget
authority change form as the obligation point. The funds control plans specifically stated that
“…funding notification may be in the form of the Funding Notification Letter, which is the
obligating document, or the Funding Notification for Field Office – S8 Budgetary Authority
Change.” The funds control plan went on to state that the signed funding notification letter was
the point of obligation.
Consequently, we were not able to validate multiple obligation and disbursement samples to
determine whether obligations incurred and disbursements made were properly supported by the
legal point of obligation. Therefore, there was no assurance that obligations and disbursements
for the Section 8 Project Based program were properly reviewed and authorized for accuracy and
that each project was funded within authorized budget limits and complied with the ADA.
Not All HUD Programs Had a Funds Control Plan
Our review of HUD’s funds control plans found that all of HUD’s activities and program codes
were not included in a plan. Specifically, we identified 115 program codes that were not
documented in a funds control plan. HUD’s program codes are used to identify funds obligated
and expended for specific programs and activities in its financial systems. During fiscal year
2014, expenditures of $599 million and obligations of $980 million were made from these
program codes.
This condition existed as a result of factors that have been reported in prior years. First, in the
past, HUD decided not to create funds control plans for programs or accounts that were only
expending funds and not incurring new obligations. However, OMB Circular A-11, section 150,
17
The notification of funding of Section 8 contract rents and funding form is required for authorizing obligation of
funds to an existing housing assistance payments contract administrated by HUD at least annually.
18
The transaction annual contributions contract amendments form is required for authorizing obligations to an
existing contract administrated by a contractor acting on HUD’s behalf at least annually.
19
The housing assistance payments contract renewal, along with the notification of funding, is required for
authorizing the project’s continued participation and for authorizing the obligation of funds the first year.
25
Administrative Control of Funds, states that the purpose of an agency’s funds control system is
to restrict both obligations and expenditures from each appropriation of fund account to the
lower of the amount apportioned by OMB or the amount available for obligation or expenditure
in the appropriation or fund account. Additionally, HUD Handbook 1830.2, REV-5,
Administrative Control of Funds, states that proper execution of a funds control plan should
provide reasonable assurance that obligations and expenditures will not exceed the authorized
limits of the allotted funds. It goes on to state that funds control plans must contain detailed
information for the program line item or other activity included in the allotment, broken down to
the lowest level of any corresponding assignment of funds, and list the hierarchy of accounting
codes associated with each funded activity covered in the allotment to show how funded
activities are controlled and rolled up to the allotment level as a required element of a funds
control plan.
Second, the Chief Financial Officer did not have controls over the process for establishing new
program codes in HUD’s accounting system. Program offices were able to request a new
program code without the review and approval of the respective funds control officer, allotment
holder, or OCFO. Therefore, program codes were established without confirmation that an
adequate funds control plan had been approved, resulting in decreased assurance that HUD’s
funds were obligated and disbursed in compliance with applicable laws and regulations. The
Federal Managers’ Financial Integrity Act of 1982 (FMFIA) states that internal accounting and
administrative controls of each executive agency must be established in accordance with
standards prescribed by the Comptroller General and must provide assurance that obligations and
costs comply with applicable law.
As a result of the lack of funds control plans for all activities and program codes, HUD did not
have documented internal controls over the obligation and disbursement of all of its funds and,
thus, could not monitor the internal controls to ensure that they functioned effectively. This
caused HUD to lose traceability of transactions with the corresponding authority and program
law.
Funds Control Plans Were Not Kept Up to Date
We previously reported that all of HUD’s funds control plans were not updated in a timely
manner. This condition continued in fiscal year 2014. Specifically, we noted the following:
25 salaries and expenses funds control plans were not updated to reflect the
implementation of HIAMS, which occurred during fiscal year 2012.
The salaries and expenses funds control plans did not reflect the December 2012
rescission of forms HUD-718, Funds Reservation and Contract Authority, and HUD-720,
Requests for Contract Services, formerly used to request contract actions through HUD
OCPO.
The funds control plan for the Office of the Chief Human Capital Officer (OCHCO) had
not been updated since its reorganization and renaming from the Office of Administration
in fiscal year 2009; thus, the plan referenced divisions and offices no longer in existence.
Revisions to these plans were in process during fiscal year 2014.
26
The funds control plans for the Section 184 Loan Guarantee program were inconsistent
with the procedures in use. Revisions to these plans were in process during fiscal year
2014.
Of a total of 212 plans, 9 needed updates to the allotment holder, 11 needed updates to
the funds control officer(s), and 66 had not been recertified as of the date of our review.
Documentation indicating the removal of a funds control officer or allotment holder was
not available for two funds control plans.
These conditions existed because HUD’s allotment holders did not update their funds control
plans or notify the Chief Financial Officer in a timely manner after changes occurred. HUD
Handbook 1820.2, REV-5, states that an allotment holder must immediately advise the Chief
Financial Officer of any changes to its funds control plan during the fiscal year. Administrative
changes to the funds control plans must be communicated in writing, including the precise
timing of any changes to the persons or positions authorized to initiate, approve, and process
actions that commit, obligate, or expend funds.
Another factor leading to the out-of-date funds control plans was OCFO’s lack of oversight and
monitoring of the program offices’ compliance with their funds control plans in prior years. The
CFO Act of 1990 states that the responsibilities of an agency chief financial officer include
directing, managing, and providing policy guidance and oversight of all agency financial
management personnel, activities, and operations. Because of the lack of oversight and
monitoring, OCFO was not aware that changes within the program offices were going unreported
and, thus, could not correct the behavior. During fiscal year 2013, OCFO’s Funds Control
Assurance Division began performing reviews of program office compliance with the funds
control plans and completed its first year of a 5-year cycle in fiscal year 2014.
Conclusion
HUD did not have a fully implemented and complete administrative control of funds system
during fiscal year 2014. As a result, it did not have adequate assurance that its obligations and
disbursements complied with applicable laws and limitations. HUD’s ability to determine the
responsible parties in the event of an Antideficiency Act violation was also hindered as a result
of its incomplete funds control system. In addition, processing disbursements before the
documented point of legal obligation may lead to violations. Statistically projecting our results
for the PIH and Multifamily Section 8 Rental Housing Assistance disbursements in fiscal year
2014, we can be 95 percent confident that at least $11.3 billion were processed without the
proper review and approval of authorizing officials. Further, statistically projecting the
Multifamily Section 8 Rental Housing Assistance obligations, we can be 95 percent confident
that at least $6.1 billion in obligations were processed without properly authorized supporting
documentation.
We have reported on HUD’s administrative control of funds in our audit reports and
management letters since fiscal year 2005, and several prior-year recommendations remained
unimplemented.
27
Recommendations
We recommend that the Chief Financial Officer
5A. Amend HUD Handbook 1830.2, REV-5, Administrative Control of Funds, to
require funds control officers and the OCFO Financial Management Division to
review and approve the request for establishing new program codes before
submitting the request to OCFO systems.
5B. For program codes created before the requirement for creating funds control
plans, request that the responsible funds control officers provide a certification
documenting the program name, the authorizing law, and the budgetary provision
restricting the use of funds to ensure that internal controls over the program codes
are maintained and available.
5C. Work with the Office of Multifamily Housing Programs to evaluate its obligation
process for the Section 8 project-based program to ensure that it complies with
HUD, OMB, and GAO legal requirements to have a legal point of obligation.
5D. Develop procedures for documenting the results of funds control plan reviews to
ensure that all sections comply with OMB Circular A-11, part 3, section 150,
Administrative Control of Funds, and part 7, appendix H, Checklist for Funds
Control Regulation Plans, and that OCFO has approved each plan.
We recommend the Assistant Secretary for Housing
5E. Work with OCFO to revise the funds control plans for the Section 8 project-based
programs to ensure that the obligation process in place is sufficient to support a
legally binding point of obligation and is reviewed and authorized by designated
officials.
28
Finding 6: HUD Continued To Report Significant Amounts of
Invalid Obligations
Deficiencies in HUD’s process for monitoring its unliquidated obligations and deobligating
balances tied to invalid obligations continued to exist. Specifically, three program offices did not
complete their obligation reviews and verifications, which had a total of $952.7 million in
obligations that went unreviewed. Additionally, we identified $210.5 million20 in invalid
obligations not previously identified by HUD and $27.3 million in obligations that HUD
determined needed to be closed out and deobligated during the fiscal year that remained on the
books as of September 30, 2014. These deficiencies were attributed to ineffective monitoring
efforts and the inability to promptly process contract closeouts. We also noted that as of
September 30, 2014, HUD had not implemented prior-year recommendations to deobligate funds
totaling $135.4 million. As a result, HUD’s unpaid obligation balances on the statement of
budgetary resources were potentially overstated by a total of $373.2 million. Additionally, HUD
lacked an established process to reconcile the subsidiary and general ledger obligation
controlling accounts, causing differences up to $466.1 million to not be identified on a timely
basis or at all, resulting in balances within the general ledger that were at risk of being
unsupported or incomplete.
Unliquidated Obligations on Expired Homeless Assistance Grants Had Not Been
Recaptured by CPD
Expired Homeless Emergency and Rapid Transition to Housing – Continuum of Care (Hearth
CoC) grants were not closed within the 90-day period after the expiration date as required by the
program’s funds control plans or the Code of Federal Regulations21. The Office of Special Needs
Assistance Programs did not implement or enforce policies and procedures to ensure that
expiring contracts were closed within the 90-day period. The expired grants with an available
balance report as of October 7, 2014,22 showed that approximately 2,743 contracts, which
expired between July 1, 2013, and June 30, 2014, were not closed within the 90-day period and
the remaining undisbursed obligation balances of approximately $119.9 million had not been
recaptured.
Newly drafted procedures to automate and expedite the deobligation and recapture process were
not consistently implemented or enforced due to competing priorities, employee turnover, and
insufficient communication between HUD headquarters and field offices. The newly drafted
procedures are included in the annual review of homeless assistance grants, which was drafted
during fiscal year 2013 and included in the funds control plan signed in June 2014.
20
$119.9 million in Homeless Assistance funds, $46.1 million in administrative obligations, and $44.6 million in
other HUD program obligations.
21
24 CFR 84.71(b) Unless HUD authorizes an extension, a recipient shall liquidate all obligations incurred under
the award not later than 90 calendar days after the funding period or the date of completion as specified in the terms
and conditions of the award or in HUD instructions.
22
We used the report, dated October 7, 2014, because it accounted for transactions made within the 7 days during
which the accounting system was held open for any remaining yearend transactions.
29
The field offices had been overwhelmed with running the fiscal years 2013 and 2014 funding
competitions simultaneously due to the October 2013 government shutdown. Employee turnover
had also been an issue due to a number of field staff retirements. In addition, field staff and
grantees had not been adequately trained or had requirements clearly communicated to them by
headquarters to ensure compliance with the new procedures regarding the Hearth CoC program
and the process for closing out expired contracts.
In addition, a task force was established in fiscal year 2013 to research and resolve outstanding
audit findings, especially those related to necessary recaptures and expired grants. The task force
was disbanded as it had been established to function temporarily. Its members moved on to
work in other program areas.
As a result, $119.9 million in grant funds was not recaptured and reallocated to be used to further
the purposes of the program or returned to Treasury. Additionally, HUD’s unpaid obligation
balances were overstated on the statement of budgetary resources.
Several Program Offices Did Not Complete Their Obligation Reviews or Deobligate Invalid
Obligations by Fiscal Yearend
The annual departmentwide obligation review and certification process is an essential part of
HUD’s internal controls over its funding and accurate financial reporting. This review gives
OCFO assurance that its fiscal yearend obligation balance is valid and accurately valued. To
ensure adequate time for the deobligation of any invalid obligations by the end of the fiscal year,
OCFO required program offices to review and certify their obligations by June 27, 2014.
However, the Offices of Housing, PIH, and the Office of the Chief Information Officer (OCIO)
missed this deadline and did not complete their review of all required obligations23 by the end of
the 2014 fiscal year. As of October 1, 2014, 868 obligations totaling $952.7 million had not
been reviewed by all three offices. As a result, any of these obligations that were invalid were
not deobligated by September 30, 2014. Consequently, HUD’s fiscal year 2014 unpaid
obligation balance on the statement of budgetary resources may have been overstated because
obligations were not reviewed.
23
For the departmentwide obligation review, OCFO establishes thresholds to ensure that at least 95 percent of
HUD’s obligations are reviewed. For fiscal year 2014, the review required all program offices to review all program
obligations over $243,000 and all administrative obligations over $23,000.
30
Table 1
Uncertified obligations as of October 1, 2014
# of
Office $
obligations
Housing 172 $121,175,734
PIH 548 $756,623,476
OCIO 148 $74,904,026
Total 868 $ 952,703,236
In addition, several offices did not complete the deobligation of the invalid obligations they
identified. During the fiscal year 2014 review, offices marked 2,177 obligations with remaining
balances totaling $37 million for deobligation. Of these, 1,354 obligations with remaining
balances totaling $27.3 million were not closed out and deobligated by the end of the fiscal
year24. We attributed HUD’s inability to process all of the closeouts and deobligations by the
end of the fiscal year to a continued lack of monitoring of obligations throughout the year.
Several HUD program offices relied on the annual OCFO-coordinated open obligations review
to review all of their obligations and deobligate any invalid obligations. As we have reported in
prior years, while the OCFO-coordinated review is an important internal control, it was not
designed to be the sole control over open obligations because (1) the period for review and
deobligation is limited and (2) only obligations above the threshold are required to be reviewed.
Since several offices did not monitor their obligations throughout the year, they struggled to
complete their review by the deadline that OCFO required. Further, since the offices did not
monitor and effectively deobligate during the year, many obligations were marked for
deobligation but could not be processed by fiscal yearend. Therefore, all 1,354 obligations
remaining on HUD’s books at yearend had not been forwarded from the program offices to the
appropriate office, either to OCPO for administrative and program contract obligations or OCFO
for program grant obligations, for closeout and deobligation. Consequently, HUD’s unpaid
obligation balances on the statement of budgetary resources were overstated by $27.3 million.
HUD was working to close and deobligate these obligations, and the associated funding should
be recaptured during fiscal year 2015.
HUD’s Administrative Obligations Were Not Effectively Monitored
HUD’s administrative obligations are a result of contracts entered into for the goods and services
necessary to operate, such as employee training, printing services, subscriptions, information
technology support, and other service contracts. Most of these administrative obligations are
made using annual appropriations that must be used to meet a bona fide need of the fiscal year in
which they were appropriated. After the year passes, and the terms of the contract have been
24
Refer to Appendix B – Departmentwide Obligation Review – Schedule of Recommended Deobligations
31
fully executed, the remaining balances are invalid25. HUD did not effectively monitor these
obligations to determine that a bona fide need still existed and the obligations were still valid.
Our review identified 893 inactive obligations on HUD’s books with remaining balances totaling
$46.126 million as of September 30, 2014.
Several of HUD’s program offices relied on the OCFO-coordinated unliquidated obligations
review to monitor their administrative obligations. Those that fell under $23,000 were not
required to be reviewed during the fiscal year 2014 review. Of the obligations identified as
inactive, 718 were under the $23,000 threshold and not reviewed. Additionally, since the
OCFO-coordinated review was performed annually, any obligations that became invalid during
the period between the end of the review and the end of the fiscal year were not identified until
the following fiscal year.
As a result, HUD’s September 30, 2014, unpaid obligation balances on the statement of
budgetary resources were potentially overstated by $46.1 million. Additionally, because most of
HUD’s administrative obligations are made using annual appropriations, by not periodically
reviewing their validity throughout the fiscal year, HUD may lose the opportunity to use funds
tied to obligations that become invalid during the year.
Other HUD Obligations Were Inactive, Expired, or Unidentified
As of September 30, 2014, we noted $23.5 million in Section 235 and 236 funds that were
identified to be deobligated but were not. We also identified an additional $17.6 million in
obligations under the Emergency Homeowner’s Loan Program (EHLP) that represent terminated
loans or State programs which are no longer disbursing. Lastly, we identified $3.5 million
related to other Housing programs,27 representing obligations that were potentially invalid due to
inactivity, expired contracts, or funds that were no longer needed and could also be deobligated.
We found that HUD did not adequately monitor and deobligate unliquidated balances from these
obligations, resulting in the unpaid obligation balance on HUD’s statement of budgetary
resources being potentially overstated by $44.6 million.
25
In our review we considered an obligation invalid if it had not had a disbursement in the last 2 years. We assume
that if the obligation has not had a disbursement in 2 years, the contract has been fully executed and it is unlikely
that future adjustments would be needed.
26
Refer to Appendix B – Departmentwide Obligation Review – Schedule of Recommended Deobligations
27
Other HUD programs include Sections 202 and 811, and project-based Section 8.
32
Table 2
Invalid HUD Obligations
$ #
Section 235/236 $23,500,000 36
Section 202/811 and Project-Based
$3,458,166 76
Section 8
EHLP (HUD-Administered $13,025,983 1,532
EHLP (Substantially Similar States) $4,576,896 10
Total Invalid Housing
Obligations Recommended for $44,561,045 1,654
Deobligation
The Subsidiary Ledger Was Not Reconciled to the Obligation Balances in the General
Ledger for All of HUD’s Open Appropriations Accounts
In fiscal year 2013, we reported that HUD’s obligation controlling accounts were not reconciled
to the supporting records for HUD’s open appropriations accounts. This condition continued in
fiscal year 2014. Management continued to lack a formal process to ensure that a periodic
reconciliation between the subsidiary ledgers and the general ledger took place and was formally
reviewed. Reconciliations were performed only when we requested them during routine audit
procedures. As a result, differences between the two ledgers were not identified and resolved in
a timely manner.
The Accounting Monitoring and Analysis Division in OCFO did not have a reconciliation
process that included verifying that HUD’s monthly, quarterly, and annual obligation reports to
Treasury and OMB agreed with HUD’s obligation control accounts for each open appropriation
account as required by GAO Title 7, chapter 3.7. Our review of the reconciliations noted several
deficiencies: (1) material differences between the systems were not explained or reconciled and
required extensive research, (2) supporting files did not agree with the reconciliation, (3)
reconciliations were not completed in a timely manner as they were performed no earlier than 46
days after the period closing, and (4) there was no evidence of a supervisory review.
Our review of the reconciliations performed identified the following differences as of June 30,
201428:
28
Our review of obligation balance reconciliations was complete as of June 30, 2014. We requested yearend
reconciliations as of September 30, 2014, but HUD was not able to provide them in time to be considered for this
report.
33
Table 329
Program Appropriation Differences
Community Development 0162 $90.7 million
Block Grant
HOME Investment 0205 $40.7 million
Partnerships Program
Hearth CoC 0192 $15.2 million
Neighborhood 0344 $248 million
Stabilization Program
Indian Housing Block 0313 $71.5 million
Grant
Total $466.1 million
We requested reconciliations of obligation balances for a sample of appropriations as of
September 30, 2014, from the Accounting Monitoring and Analysis Division but they were not
provided in time to allow us to fully review them as originally planned. Explanations provided
indicated a lack of staff resources and competing priorities with fiscal yearend closing.
We reported in fiscal year 2013 that the Accounting Monitoring and Analysis Division planned
to hire a contractor and work with the OCFO Systems Division to determine the appropriate
system reports needed to complete the reconciliations and create and document reconciliation
policies and procedures. However, due to budget and staffing limitations, no action had been
taken as of the date of this report.
Without formal procedures to require the completion of periodic reconciliations, the differences
between the subsidiary and general ledger systems may not be identified and resolved in a timely
manner. When differences are not identified in a timely manner, the number of transactions and
time and research needed to reconcile the differences increases.
Prior-Year Recommendations Had Not Been Implemented
We noted that as of September 30, 2014, prior-year recommendations regarding deobligation
amounts totaling $135.4 million were outstanding. Therefore, HUD’s unpaid obligations on the
statement of budgetary resources related to prior-year unimplemented recommendations were
overstated by $135.4 million.
29
Differences presented as absolute values
34
Table 4
Office Program $
Homeless assistance $46.2 million
CPD American Recovery
$4.9 million
and Reinvestment Act
Public Housing
PIH $11 million
Operating Subsidy
Emergency
Homeowner Loan $73.3 million
Housing Program
Total: $135.4 million
Conclusion
HUD’s processes for (1) monitoring the validity and need for its unliquidated obligations and (2)
timely closeout of expired grants continued not to be fully effective during fiscal year 2014. As
a result, we identified $210.5 million tied to expired or inactive obligations or grants that had not
completed the closeout process. Additionally, HUD did not close out all of the obligations
identified as invalid by the end of the fiscal year, resulting in $27.3 million in invalid obligations
remaining on HUD’s books at yearend. In total, HUD’s unliquidated obligation balance on the
statement of budgetary resources was potentially overstated by $237.8 million. We also noted
that as of September 30, 2014, HUD had not implemented prior-year recommendations totaling
$135.4 million.
HUD’s lack of an established process to reconcile the subsidiary and general ledger systems
caused differences between obligations controlling accounts and supporting records not to be
identified on a timely basis if at all, leaving unsupported or incomplete balances in the general
ledger, which were at risk of being transferred to the new accounting system.
Recommendations
We recommend that the Assistant Secretary for Community Planning and Development
6A. Review the status of the 2,743 expired contracts, which make up the $119.9
million in Homeless Assistance funds; close out the contracts; and recapture the
excess funds.
6B. Deobligate $174,168 in 5 administrative obligations and $9,920,926 in 308
program obligations marked for deobligation during the departmentwide open
obligations review. Additionally, review the 72 obligations with remaining
balances totaling $313,419 and close out and deobligate amounts tied to
obligations that are no longer valid or needed.
6C. Increase its communication with HUD field offices and grantees to ensure that the
field offices are aware of and comply with updated deobligation and recapture
policies for expired grants.
35
6D. Reestablish a task force to ensure adequate tracking of the status of expiring
grants and timely recapture of funds from expired grants.
We recommend that the Federal Housing Commissioner and Assistant Secretary for Housing
6E. Deobligate all obligations marked for deobligation during the departmentwide
open obligations review, including as much as $4,988,326 in 613 administrative
obligations and $6,395,922 in 79 program obligations marked for deobligation as
of September 29, 2014. Additionally, review the 269 obligations with remaining
balances totaling $19,624,446 and close out and deobligate amounts tied to
obligations that are no longer valid or needed.
6F. Deobligate the 76 expired or inactive Sections 202 and 811 and project-based
Section 8 projects totaling $3,458,166.
6G. Review and if necessary deobligate $4,576,896 in 10 obligations related to HUD’s
Emergency Homeowner Loan Program substantially similar states program.
6H. Develop and implement policies and procedures, including contingency plans to
ensure that Housing meets all future deadlines for the departmentwide
unliquidated open obligations review.
6I. Deobligate the 36 inactive or expired Sections 235 and 236 funding lines totaling
$23.5 million.
We recommend that the Chief Information Officer
6J. Deobligate all obligations marked for deobligation during the departmentwide
open obligations review, including as much as $3,561,042 in 64 administrative
obligations marked for deobligation as of September 29, 2014. Additionally,
review the 171 obligations with remaining balances totaling $19,730,791 and
close out and deobligate amounts tied to obligations that are no longer valid or
needed.
6K. Complete the fiscal year 2014 obligation review and certification process as soon
as possible.
6L. Work with OCFO and the government technical representatives to develop a
submission process that allows adequate review of open obligations and ensures
that OCIO meets all future deadlines for the departmentwide unliquidated open
obligation review.
36
We recommend that the Assistant Secretary for Policy Development and Research
6M. Review the 1,532 HUD-administered EHLP loan obligations with remaining
balances totaling $13,025,983 and close out and deobligate amounts tied to
obligations that are no longer valid or needed.
6N. Deobligate $136,391 in two administrative obligations and 8,507 in two program
obligations marked for deobligation during the departmentwide open obligations
review. Additionally, review the 10 obligations with remaining balances totaling
$76,642 and close out and deobligate amounts tied to obligations that are no
longer valid or needed.
We recommend that the Chief Administrative Officer
6O. Deobligate $89,237 in 46 administrative obligations marked for deobligation
during the departmentwide open obligations review. Additionally, review the 199
obligations with remaining balances totaling $4,146,234 and close out and
deobligate amounts tied to obligations that are no longer valid or needed.
We recommend that the Chief Human Capital Officer
6P. Deobligate the $366,348 in 99 administrative obligations marked for deobligation
during the departmentwide open obligations review. Additionally, review the 65
obligations with remaining balances totaling $1,383,565 and close out and
deobligate amounts tied to obligations that are no longer valid or needed.
We recommend that the Acting Assistant Secretary for Public and Indian Housing
6Q. Deobligate all obligations marked for deobligation during the departmentwide
open obligations review, including as much as $160,998 in 73 administrative
obligations and $1,182,645 in 24 program obligations marked for deobligation as
of September 29, 2014. Additionally, review the 34 obligations with remaining
balances totaling $151,963 and close out and deobligate amounts tied to
obligations that are no longer valid or needed.
6R. Develop and implement oversight procedures to ensure that the level one
representative (1) completes all responsibilities related to the departmentwide
unliquidated open obligation review within the timeframe required, (2) monitors
the status of the review, and (3) executes a contingency plan if problems are
identified to allow the review to be completed by the established deadline.
We recommend that the Chief Financial Officer
6S. Deobligate $785 in one administrative obligation marked for deobligation during
the departmentwide open obligations review. Additionally, review the six
37
obligations with remaining balances totaling $332,888 and close out and
deobligate amounts tied to obligations that are no longer valid or needed.
We recommend that the Assistant Deputy Secretary for Field Policy and Management
6T. Review the 50 obligations with remaining balances totaling $308,793 and close
out and deobligate amounts tied to obligations that are no longer valid or needed.
We recommend that the Assistant Secretary for Fair Housing and Equal Opportunity
6U. Deobligate $5,210 in two administrative obligations and $109,500 in one program
obligation marked for deobligation during the departmentwide open obligations
review. Additionally, review the 17 obligations with remaining balances totaling
$26,711 and close out and deobligate amounts tied to obligations that are no
longer valid or needed.
We recommend that the Assistant Secretary for Public Affairs
6V. Deobligate $85,006 in 12 administrative obligations marked for deobligation
during the departmentwide open obligations review.
We recommend that the Chief Executive Officer, Office of the Secretary,
6W. Deobligate $68,828 in 16 administrative obligations marked for deobligation
during the departmentwide open obligations review.
38
Finding 7: HUD’s Financial Management Governance Structure
and Internal Controls Over Financial Reporting Were Ineffective
While HUD took steps in fiscal year 2014 to address some of the weaknesses in its financial
management governance structure and internal controls over financial reporting, deficiencies
continued to exist. Specifically, stronger direction and involvement with program accounting
was needed from the Office of the Chief Financial Officer, front end risk assessments were not
completed in a timely manner, and while accounting policies were developed during fiscal year
2014, there were deficiencies in their implementation. These conditions stemmed from HUD’s
inadequate implementation of the CFO Act of 1990 and the lack of a Senior Management
Council that limited the ability of the CFO to facilitate and stress the importance of financial
management and internal control over financial reporting throughout the Department.
Additionally, as we have reported in prior-year audits, HUD did not have reliable financial
information for reporting, did not have an integrated financial management system, and had not
replaced its outdated legacy financial systems. As a result, multiple deficiencies existed in
HUD’s internal controls over financial reporting, resulting in misstatements on the financial
statements and instances of noncompliance with laws and regulations.
HUD Had Begun To Address Deficiencies in Its Financial Management Governance
Structure, But Additional Progress Was Needed
During fiscal year 2014, HUD took steps to address several of the weaknesses in its financial
management governance structure that were identified in our report last year.30 Specifically,
vacancies in OCFO and three of the four assistant chief financial officer positions had been
filled, and the process of hiring additional staff with responsibilities for drafting accounting
policies and procedures had started.
Additionally, a study was procured on September 30, 2014 to identify potential changes across
the agency that could be implemented to improve HUD’s compliance with the CFO Act and
resolve this significant deficiency. HUD decided not to make any organizational changes until
the study was completed. Accordingly, many of the issues that we discussed last year remained.
Specifically, HUD lacked a senior management council and senior assessment team or
equivalent committees responsible for (1) assessing and monitoring deficiencies in internal
control resulting from the FMFIA assessment process, (2) advising the HUD Secretary of the
status of corrections to existing material weaknesses, and (3) apprising the Secretary of any new
material weaknesses that may need to be reported to the President and Congress through the
annual financial report. While establishment of a senior management council and senior
assessment team is not required by OMB Circular A-123, Management’s Responsibility for
Internal Control, it is recommended and is a best business practice. According to OMB Circular
A-123, the chief financial officer should be a member of the senior management council, and the
senior assessment team should report to the chief financial officer. The senior assessment team
30
Audit report 2014-FO-0003, Additional Details To Supplement Our Report on HUD’s Fiscal Year 2013 and 2012
(Restated) Financial Statement, issued December 16, 2013
39
provides oversight and accountability for the agency’s internal controls over financial reporting
and should include executives from areas responsible for maintaining controls over key
processes and systems. OMB Circular A-123 also recommends that agencies evaluate and
document their understanding of internal control over financial reporting. The evaluation of
internal control at the process or transaction level includes the adequate documentation of the
financial reporting process. It is important for management to document the financial reporting
process to identify where errors could occur and what controls can be implemented. We have
noted opportunities for improvement in HUD’s evaluation and documentation of its financial
reporting processes and will work with HUD management going forward to discuss the potential
to implement improvements where possible.
Without an appropriate focus on internal controls, HUD had difficulties in fully implementing
the CFO Act and creating an effective financial management governance structure and system of
internal controls over financial reporting. While the lack of a senior management council and
senior assessment team or equivalents were not the sole cause of the deficiencies in the structure
of HUD’s OCFO and financial management systems, HUD’s ability to identify the need for and
make significant changes was impaired.
Stronger Direction and Involvement With Program Accounting Was Needed From OCFO
Due to the size and nature of HUD, its Chief Financial Officer delegated and relied on the
program offices for several key financial management functions. This situation created an
environment in which program-related needs and concerns were assigned higher priority than
financial management and reporting requirements. We noted the following instances in which
this environment, combined with a lack of communication, led to deficiencies.
First, CPD used the FIFO method to obligate and disburse funds for its formula grants program.
This method disregarded USSGL attributes at the transaction level when obligating and making
disbursements, causing a departure from GAAP. This deficiency will exist for several years
because the programing changes to the CPD formula grant programs system will be on a
prospective basis for fiscal years 2015 going forward and not apply to prior-year grant funds.
We will continue to report on this area until the effects of the misstatements caused by FIFO are
assessed at less than a material amount.31
Second, in last year’s report,32 we noted that HUD did not account for transactions resulting from
a congressional requirement to implement Treasury regulations on cash management for the
Section 8 Housing Choice Voucher program. This condition occurred because OCFO was not
consulted when PIH implemented the cash management process in fiscal year 2012. Since a
basic understanding of the business processes and financial transactions impacted by the cash
management process was not established and continued in fiscal year 2014, significant delays
31
See finding 1 for more detail.
32
Audit report 2014-FO-0003, Additional Details To Supplement Our Report on HUD’s Fiscal Years 2013 and
2012 (Restated) Financial Statements, issued December 16, 2013
40
between the occurrence and recognition of financial events in the general ledger continued in
fiscal year 2014.33
Third, three of HUD’s program offices did not complete reviews and certify their open
obligations during the departmentwide open obligations review and certification process despite
reminders from OCFO. There were multiple reasons cited for this deficiency, including
personnel changes and a lack of familiarity with the process on the part of new personnel. As a
result, HUD did not have assurance that 868 obligations with remaining balances totaling $952.7
million were valid.34
Finally, OCIO did not provide sufficient information to allow OCFO to accurately account for
certain software projects. Specifically, we found that OCFO was not provided adequate
documentation to support an analysis resulting in $103 million in software costs that were
written off. This condition occurred because OCFO and the OCIO lacked adequate internal
controls to ensure the timely exchange of information needed for accurate financial reporting.
OCIO did not have procedures to analyze the status of software projects and determine when
they were placed into service or discontinued and HUD did not have an adequate subsidiary
ledger for software projects. As a result, HUD could not ensure the accuracy of the balances for
its internal use software in the general ledger and financial statements.
The lack of adequate OCFO oversight of these and other financial management functions
contributed to five deficiencies. The lack of oversight was the result of OCFO’s not having a
position or division with responsibility for overseeing and coordinating financial management
functions handled by the program offices.
Front-End Risk Assessments Were Not Completed in a Timely Manner
HUD did not review and approve front-end risk assessments in a timely manner. As of
September 30, 2014, there were nine incomplete assessments in various stages of development
and review. These assessments ranged from 1 to 8 years since their initiation. OCFO Handbook
1840.1, Departmental Management Control Program, requires that front-end risk assessments be
conducted for new or substantially revised programs or administrative functions with an increase
or decrease in annual funding or cost of more than $10 million and a 5 percent change in the
affected budget line item. It further states that, regardless of these requirements, the application
of the front-end risk assessment concept should be applied to any significant program change as
a matter of good management and business practice. The assessment’s purpose is to detect
conditions that may adversely affect the achievement of program objectives and provide
reasonable assurance that the goals of safeguarding assets, effectiveness and efficiency of
operations, reliability of financial reporting, and compliance with applicable laws and regulations
are met.
33
See finding 2 for more detail.
34
See finding 6 for more detail.
41
While it stated that front-end risk assessments must be completed, Handbook 1840.1 did not
provide periods for completion of the assessments by the program offices or completion of the
review process by OCFO. Additionally, the handbook lacked an escalation process to address
program offices that were nonresponsive to requests to complete assessments. Therefore, OCFO
did not have the authority to enforce the timely completion of the assessments, resulting in the
program offices completing them at their convenience.
In an attempt to address this issue, the Deputy CFO issued a memorandum in August 2012 to
HUD’s principal staff for all program areas. The memorandum required that “FERA’s must be
performed on all functions that meet the aforementioned requirements within one year from the
time the apportionment is first made available.” Despite the prescribed timeframe outlined in the
memorandum, the FERAs still have not been completed timely.
Untimely completion of front-end risk assessments can lead to undetected conditions that may
adversely affect whether HUD’s assets are sufficiently safeguarded and financial reporting is
reliable. For example, an assessment was not completed when HUD was required to implement
Treasury’s cash management regulations for the Section 8 Housing Choice Voucher program.
As a result, OCFO was not consulted or made aware of the changes and could not evaluate their
impact on HUD’s financial reporting. This was a major cause for the material weakness in PIH’s
cash management processes.35
HUD Worked To Issue Policy Guidance, But There Were Deficiencies in Implementation
HUD took steps during fiscal year 2014 to provide policy guidance for all agency financial
management personnel, activities, and operations as required by the CFO Act. As of September
30, 2014, policies for estimating accruals for goods and services received but not invoiced,
estimating accruals for purchase card expenses, and consolidating HUD’s financial statements
were being developed and were in the departmental clearance process. Additionally, OCFO had
issued a policy for estimating accruals for HUD’s grant programs. These policies were created
to address findings in last year’s report.36
While a policy to estimate grant accruals was implemented during fiscal year 2014, we noted a
material misstatement in CPD’s fiscal year 2013 estimate and a lack of proper validations of the
estimates for other program offices. This situation stemmed from inadequate methodologies
developed by the program offices in response to the issuance of the grant accrual policy.37
Similarly, a consolidation policy was being developed. Through discussions with OCFO, FHA,
and Ginnie Mae, we determined that short sale claims receivable due to Ginnie Mae from FHA
were not eliminated during consolidation. As a result, HUD’s other noncredit reform loans and
35
See finding 2 for more detail on the PIH cash management weaknesses.
36
Audit report 2014-FO-0003, Additional Details To Supplement Our Report on HUD’s Fiscal Years 2013 and
2012 (Restated) Financial Statements, issued December 16, 2013
37
See finding 3 for additional detail.
42
loan guarantee liability were overstated by as much as $62 million on its fiscal year 2013 balance
sheet. HUD agreed to eliminate the short sale claims receivable balance for fiscal year 2014.
To address these issues, additional oversight is needed from OCFO to ensure that the policies
and guidance it puts forth are properly implemented.
Adequate Accounting and Financial Systems Were Not Implemented and Maintained
The CFO Act states that the responsibilities of an agency chief financial officer include
developing and maintaining adequate accounting and financial systems and implementing
agency asset management systems, including systems for cash management, debt collection, and
property and inventory management and control. Ideally, financial systems should provide
complete, reliable, timely, and useful financial management information efficiently and
effectively. HUD was not able to develop or implement newer, more efficient systems to replace
the multiple legacy financial systems required to perform key financial system functions.
Consequently, the Chief Financial Officer did not maintain integrated accounting and financial
systems or implement agency asset management systems as required by the CFO Act.
Specifically, we noted the following:
In fiscal year 2012, OCFO’s efforts to replace its noncompliant primary financial system
failed due to poor planning and a lack of consideration of components’ functional needs;
OCFO did not ensure that program office systems, such as IDIS Online, were designed to
provide compliant financial information;
OCFO did not ensure that adequate systems were in place for credit-granting programs;
A cash management system that properly recognized accounts receivable or payable or
ensured that assets were properly protected had not been implemented;
Contrary to CFO Act requirements, OCFO did not ensure property management control
over accountable assets. HUD’s property inventory management and control system,
FIRMS, was found to be noncompliant with requirements for Federal systems and was
not able to produce accurate accounting reports.
The Loan Accounting System (LAS) did not contain complete and reliable information
for the Emergency Homeowners’ Loan Program (EHLP), therefore, it did not support the
loans receivable balance for the EHLP.
HUD’s inability to complete its primary financial system implementation project; implement
asset management, cash management, and credit management systems; and ensure program
system compliance resulted in its inability to routinely provide reliable financial information
consistently, accurately, and uniformly.
Conclusion
Despite the progress made during fiscal year 2014, deficiencies in HUD’s financial management
governance structure continued. Specifically, the lack of a senior management council limited
the ability of the Chief Financial Officer to facilitate and stress the importance of financial
management and internal controls over financial reporting throughout HUD. Deficiencies in
HUD’s implementation of the CFO Act also contributed to this condition. Specifically, OCFO
did not oversee all agency financial management activities and operations and did not see to the
proper implementation of financial and asset management systems. The lack of oversight
43
combined with breakdowns in communications between OCFO and the program offices led to
multiple significant deficiencies in HUD’s internal controls and material weaknesses.
Recommendations
We recommend that the Office of the Chief Financial Officer
7A. Revise its policies and procedures to include a period of completion for front-end
risk assessments by program offices and the review process by OCFO. Further,
OCFO should ensure that an escalation process is included to address untimely
completion of the assessment process.
7B. Work with the Chief Financial Officer of Ginnie Mae and Comptroller of FHA to
determine the amount of short sale claims receivable due to Ginnie Mae from
FHA and eliminate them on the consolidated financial statements.
7C. Develop and implement procedures requiring OCIO to provide timely and reliable
information needed to accurately account for HUD’s internal use software in
accordance with SFFAS 10.
7D. Periodically reconcile balances with OCIO subsidiary records and research and
resolve any identified differences.
We recommend that the Assistant Secretary for Housing
7E. Increase efforts to quickly complete outstanding front-end risk assessments and
coordinate with OCFO to finalize the review and approval process even in the
absence of policies and procedures with specific deadlines in this area.
We recommend that the Assistant Secretary for Community Planning and Development
7F. Increase efforts to quickly complete outstanding front-end risk assessments and
coordinate with OCFO to finalize the review and approval process even in the
absence of policies and procedures with specific deadlines in this area.
We recommend that the Assistant Secretary for Public and Indian Housing
7G. Increase efforts to quickly complete outstanding front-end risk assessments and
coordinate with OCFO to finalize the review and approval process even in the
absence of policies and procedures with specific deadlines in this area.
We recommend the Office of Chief Information Officer
7H. Develop and implement procedures to ensure that the cost of newly acquired or
developed software and historical projects is analyzed in a timely manner to
44
determine whether cost should be capitalized or expended based on SFFAS
requirements and that information is communicated to OCFO in a timely manner.
7I. Develop a subsidiary system to accumulate the capitalized cost and related
depreciation expense for each software project under development or placed into
production.
45
Finding 8: Weaknesses in HUD’s Rental Housing Assistance
Program Monitoring Continued
While weakness in HUD’s rental assistance program continued, HUD was working through
previous Office of Inspector General (OIG) recommendations to improve monitoring of its more
than 2,200 PHAs to ensure that they (1) report accurate financial data in a timely manner; (2)
utilize their funds and leasing capacity; (3) comply with statutory objectives; and (4) verify
tenant data to reasonably ensure correct housing subsidy payments. Although HUD had
improved some aspects of its internal controls from previous years, more improvements are
needed to ensure that these objectives are met. PIH does not have adequate assurance that VMS
self-reported data is accurate, PHAs did not fully utilize their funding, we could not evaluate
compliance with MTW statutory requirements, and PHAs continued to make significant amounts
of improper payments. We attribute the majority of these shortcomings to agency priorities and
the effects of sequestration.
The Quantity of Quality Assurance Division Monitoring Reviews Continued To Be
Insufficient
VMS collects PHA data that enable HUD to fund, obligate, and disburse voucher funding to
PHAs in the Section 8 Housing Choice Voucher program. Since HUD uses VMS data to
determine annual funding allocations, calculate quarterly PHA disbursements under the new cash
management process, and determine PHA NRA excess funds, it is critical that the data it
contains be reliable. To provide timely validation of PHA program and financial information
and ensure compliance with voucher program requirements, in 2003, a congressional committee
recommended that HUD establish a Quality Assurance Division (QAD) for the Section 8
Housing Choice Voucher program.
In fiscal year 2013,38 we noted that due to HUD priorities, the Quality Assurance Division was
not given adequate staffing or funding to fulfill its mission or act as an internal control over PHA
reporting as intended by the congressional committee. Therefore, we recommended that PIH
allocate resources so that all of the reviews determined necessary in a full PHA risk assessment
could be performed and clearly documented to show the qualitative and quantitative findings. In
response to this recommendation, PIH reported that it planned to hire seven program analysts
and two supervisory program analysts and expected that they would be in place by December 31,
2014. As of September 30, 2014, the Quality Assurance Division had hired six new staff
members.39 In addition, PIH must complete corrective action on a related recommendation from
our fiscal year 2013 audit report, in which we recommended that PIH develop a risk assessment
process that evaluates risk for all PHAs to reasonably ensure that VMS data are accurate and
expenses are valid. The final action date for this recommendation is also December 31, 2014.
38
Audit report 2014-FO-0003, Additional Details To Supplement Our Report on HUD’s Fiscal Year 2013 and 2012
(Restated) Financial Statements
39
The Quality Assurance Division informed us that two new staff members came on board in June, and four came
on board at the end of September.
46
PIH was developing an enterprisewide risk assessment that would evaluate PHA risk at four
different levels: entity, project, program, and enterprise. PIH planned to have the Office of Risk
Management and PIH Risk Committee coordinate information from all levels so that best
practices could be shared throughout PIH and review efforts would not be duplicated. The entity
segment of this risk assessment was nearly complete, while the project, program, and enterprise
sectors were still in process. PIH expected the entire model to be completed at the end of fiscal
year 2015.
In fiscal year 2013, we also recommended that PIH develop and implement a mechanism to track
the resolution process for all Quality Assurance Division reviews and require field offices to use
this system during their followup. To address this recommendation, the Quality Assurance
Division agreed to establish SharePoint links with the Office of Field Operations and field
offices so field offices could easily view and close pending actions on corrective action plans.
This measure would also allow one location to store all Division reviews and results. The final
action date for this plan is April 20, 2015.
In fiscal year 2014, we noted that the conditions reported on in prior years still existed; however,
the corrective action plans to address the three recommendations discussed above had not been
fully implemented. While PIH worked to implement these recommendations, VMS data were
not adequately validated, making the Section 8 program more susceptible to fraud, waste, and
abuse.
Opportunities Exist To Improve the Use of Housing Choice Voucher Program Funds
In fiscal year 2013, we reported that due to funding reductions amounting to $975 million for the
Housing Choice Voucher program,40 PHAs were using their budget authority and drawing down
NRA funds to cover their costs more quickly than in prior years. In fiscal year 2014, PHAs
experienced the opposite problem. They scaled back their leasing in 2013 to meet the funding
restrictions and were notified late in March41 that they would receive regular funding levels in
2014. Therefore, the use of funds as of June 30, 2014, was low because PHAs were still trying
to lease additional units to meet the funding increase. PIH data indicated that as of June 30,
2014, 739 PHAs, or 33 percent of the 2,207 PHAs42, had the budget authority to lease additional
units but did not reach their goal of more than 95 percent. HUD’s calculations estimated that
these PHAs could have leased an additional 30,214 units in June. HUD also estimated that 472,
40
The fiscal year 2013 third quarter consolidated financial statements listed an across-the-board rescission and
sequestration rescission totaling more than $975.5 million. The across-the-board rescission was stated in the
Consolidated and Further Continuing Appropriations Act, 2013, Public Law 113-6, issued March 26, 2013.
Sequestration cuts were ordered in a presidential order, issued March 1, 2013. The across-the-board rescission
Treasury warrant date was May 29, 2013, and sequestration rescission Treasury warrant date was August 24, 2013.
41
HUD operated under a continuing resolution until an appropriation bill was passed January 17, 2014. This
situation delayed HUD’s funding process and caused notification letters to PHAs to be delayed.
42
This does not include the 39 MTW PHAs because HUD does not perform this analysis for these PHAs since funds
may be used on non-HAP expenses.
47
or 21 percent of the PHAs, that used their budget authority but could have leased 10,876 units
with NRA that was not used. Using HUD’s data and threshold for under leased PHAs43, we
determined that from January through June 2014 these PHAs did not use $150 million in current
year budget authority and NRA that was available to them. Only 80 PHAs, or 3 percent, were at
risk of a shortfall, which was down from 19.6 percent in fiscal year 2013.
Before the effects of the rescissions, PIH implemented the Housing Choice Voucher program
InfoPath system and 2-year forecasting tool to improve the use of program funds and decrease
shortfalls. The InfoPath system flags PHAs with potential shortfalls to alert field offices and
ensure that they work with the PHA to avoid shortfalls. The 2-year forecasting tool projects
program leasing,44 spending, and funding over a 2-year period to allow field offices to monitor
unit and fund use. Due to the unique situation in 2014, it was difficult to determine the
effectiveness of these tools; however, they appeared to increase communication between the
field offices and PHAs, which is essential in reducing shortfalls and increasing use.
Not all PHAs Submitted Financial Statements in FASS
In fiscal year 2013, we reported that not all PHAs submitted financial statements and due to
HUD priorities, HUD was not penalizing these PHAs. In fiscal year 2014, we noted that this
problem continued to exist. In our prior-year report, we recommended that PIH develop and
implement standard operating procedures for addressing PHAs that had not submitted financial
statements, including a process for assessing and collecting late penalties in a consistent and
timely manner. PIH agreed to include an update to Notice PIH 2012-21,45 which would provide
for specific penalties or sanctions to be imposed upon PHAs that fail to submit required financial
statements in FASS and required financial information in VMS by required deadlines.
Additionally, PIH planned to establish related internal standard operating procedures to ensure
consistent and timely assessment and collection of stated penalties. The target action date is
December 31, 2014.
MTW Program Statutory Objectives Were Not Measured
In prior years, OIG and GAO46 reported that HUD’s internal controls were not sufficient to
capture and evaluate MTW PHAs’ performance and use of funds to determine HUD’s
compliance with the program statutory objectives.47 To address this concern, in fiscal year 2013,
HUD revised its standardized reporting framework by restructuring its annual MTW plan and
report to include standard metrics for each of the statutory objectives. HUD also began requiring
43
HUD considers a PHA to have additional leasing potential if their excess funding (current year funding and NRA)
is over 8.5 percent of the PHA’s current year budget authority. HUD believes amounts under this threshold are
necessary to prevent shortfalls.
44
Leasing is considered maximized at 95 percent.
45
Financial Reporting Requirements for the Housing Choice Voucher Program Submitted Through the Financial
Assessment Subsystem for Public Housing and the Voucher Management System
46
GAO-12-490, Opportunities Exist To Improve Information and Monitoring, issued April 19, 2012
47
OMB Circular A-123, section I, states, “The proper stewardship of Federal resources is an essential responsibility
of agency managers and staff. Federal employees must ensure that Federal programs operate and Federal resources
are used efficiently and effectively to achieve desired objectives.”
48
all MTW agencies to report in FASS. Starting in June 2013, HUD required MTW PHAs to use
the revised plan and report format for all new proposed activities with report submission due on
or after March 2014.48 When we contacted the MTW office at the end of August, it stated that it
was reviewing the first submission of these new reports.49
While the new report and plan appeared to capture the statutory objectives and provide HUD
with information necessary to assess the program, we were unable to determine its effect on
program monitoring.
Significant Improper Payments in Rental Housing Assistance Programs Continued
HUD’s rental housing assistance programs50 spent more than $32 billion in fiscal year 2014 and
were at risk of significant improper payments.51 In these programs, tenants generally pay up to
30 percent of their adjusted income as rent, and HUD pays the remainder of the rental cost (or
the operating cost in the case of public housing). These programs are administered by PHAs and
multifamily housing owners or management agents on HUD’s behalf. Since 2000, HUD had
made substantial progress in reducing incorrect payments in these programs, from an estimated
$3.2 billion to $1.23 billion in fiscal year 2011 and $1.32 billion in 2012. However, in fiscal
year 2013, the programs continued to exceed the Improper Payments Elimination and Recovery
Act of 2010 (IPERA) significance threshold of 1.5 percent of program outlays. Therefore, HUD
needs to monitor its program administrators and tenants and follow IPERA requirements that
agencies with significant improper payments develop effective corrective action plans.
HUD’s most recent contracted quality control study52 of fiscal year 2013 estimated that program
administrator error contributed to gross incorrect payments of approximately $177.9 million in
public housing, $324.2 million in PHA-administered Section 8, and $105 million in owner-
administered Section 8 programs, amounting to approximately $607.8 million. The study also
estimated that tenants intentionally not reporting income contributed to improper payments of
approximately $87.5 million in PHA-administered public housing, $153.8 million in PHA-
48
PHAs were given 75 days after the end of their fiscal year to submit their reports, therefore, each MTW PHA’s
submission due date depended on their fiscal year start date, with the first submissions in March.
49
The first submissions for PHAs with December 31 fiscal yearends were submitted in March 2014. PHAs will
continue to submit reports based on their fiscal years through 2014.
50
HUD’s rental assistance programs consist of (1) public housing operating subsidy, (2) Section 8 (Housing Choice
Voucher and Modern Rehabilitation) and (3) Multifamily owner-administered project-based programs.
51
An improper payment is any payment that should not have been made or that was made in an incorrect amount
(including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable
requirements. IPERA considers improper payments to be significant when they total $10 million of all program or
activity payments made during the fiscal year reported and are 1.5 percent of program outlays or $100 million.
52
Quality Control for Rental Assistance Subsidy Determination, issued September 26, 2014. This report was
produced for HUD by ICF International. Errors in this study are a combination of program administrators’ entering
incorrect data into PIH’s Information Center system and HUD’s Tenant Rental Assistance Certification System and
program administrators’ not verifying tenant-reported information. The study was based on analyses of a statistical
sample of tenant files, tenant interviews, and third-party documents verifying income.
49
administered Section 8 programs, and $73.9 million in owner-administered project-based Section
8 programs totaling $315.2 million in improper payments. HUD did not conduct a study to
estimate administrator billing errors for fiscal year 2013 but used a previously estimated $106
million billing error to arrive at the total gross error amount of $1.03 billion in improper
payments.
Conclusion
In fiscal year 2014, HUD was working to implement previous Office of Inspector General (OIG)
recommendations to improve monitoring of its more than 2,200 PHAs that received $17.3 billion
to ensure that they (1) report accurate financial data in a timely manner; (2) utilize their funds
and leasing capacity; (3) comply with statutory objectives; and (4) verify tenant data to
reasonably ensure correct housing subsidy payments. HUD has improved some aspects of its
internal controls from previous years; however, more improvements are needed to ensure that
these objectives are met. Until the controls related to these recommendations are fully
implemented, PIH does not have adequate assurance that VMS self-reported data is accurate
and we cannot evaluate Section 8 program compliance for the MTW programs. Further, HUD
remained at risk of improper payments, and the Section 8 program was susceptible to fraud,
waste, and abuse.
Recommendations
Prior-year recommendations regarding this finding remain open and can be referred to in the
Followup on Prior Audits section of this report. We have no new recommendations in this
report.
50
Finding 9: HUD Did Not Substantially Comply With the Federal
Financial Management Improvement Act
In fiscal year 2014, we noted instances in which HUD’s financial management system did not
substantially comply with FFMIA. HUD’s continued noncompliance was largely due to a
reliance on legacy financial systems and information security weaknesses. While HUD
continued to work toward financial management system modernization and FFMIA compliance,
significant challenges remained.
OIG and Agency FFMIA Compliance Determinations
In fiscal year 2014, OIG and HUD noted instances of substantial noncompliance with FFMIA.
While HUD made moderate progress toward FFMIA compliance during 2014, further actions
will be necessary to achieve future FFMIA compliance. To assess FFMIA compliance during
2014, we used OMB Circular A-123, appendix D, dated September 20, 2013.53
FFMIA requires that CFO Act agencies and their auditors make an annual determination as to
whether an agency’s financial management systems comply with the requirements of section
803(a) of FFMIA. Section 803(a) requires the implementation and maintenance of financial
management systems that substantially comply with (1) Federal financial management system
requirements, (2) applicable Federal accounting standards, and (3) USSGL at the transaction
level. For areas of FFMIA noncompliance, agencies must identify remediation activities that are
planned and underway, describing target dates and offices responsible for bringing systems into
substantial compliance with FFMIA.54
In fiscal year 2014, HUD determined that the agency and its financial management system did
not substantially comply with FFMIA. HUD reported that 4 of 40 financial systems did not
comply with the requirements of FFMIA. Specifically, HUD noted that FIRMS, HPS, SPS, and
IDIS did not comply with FFMIA. HUD and the OIG both noted a lack of substantial
compliance with federal financial system requirements, federal accounting standards, and
USSGL at the transaction level. Refer to Table 5 below. Refer to Appendix C for additional
details.
53
OMB Memorandum M-13-23 (OMB Circular A-123, appendix D) (October 21, 2013, accessed October 9, 2014);
http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-23.pdf
54
OMB Circular No. A-136, Revised (October 21, 2013, accessed October 9, 2014);
http://www.whitehouse.gov/sites/default/files/omb/assets/OMB/circulars/a136/a136_revised_2013.pdf
51
Table 5
Compliance with section 803(a) of FFMIA
Agency Auditor
Lack of substantial Lack of substantial
1. System requirements
compliance noted compliance noted
Lack of substantial Lack of substantial
2. Accounting standards
compliance noted compliance noted
3. USSGL at transaction Lack of substantial Lack of substantial
level compliance noted compliance noted
As the aggregate impact of HUD’s system limitations expands beyond the scope of the updated
FFMIA framework, the system flaws identified as instances of FFMIA noncompliance are
further described in the Internal Control section of this report as deficiencies contributing to a
related material weakness.
FISMA Results
The fiscal year 2014 independent evaluation of the HUD information technology security
program found significant deficiencies in practices and component parts of the program. The
Federal Information Security Management Act (FISMA) requires agencies to provide
information security controls commensurate with the risk and potential harm of not having those
controls in place. The heads of agencies and offices of inspectors general are required to
annually report on the compliance and effectiveness of the agency program. “Significant
deficiencies” identified under FISMA must be reported by management as material weaknesses
under FMFIA and as a lack of substantial compliance under FFMIA if related to financial
systems. The deficiencies identified were pervasive, impacting both financial and nonfinancial
systems. Therefore, the findings of the FISMA evaluation constituted a lack of substantial
compliance under FFMIA.55
55
OMB Bulletin 14-02, Audit Requirements for Federal Financial Statements, (October 21, 2013);
http://www.whitehouse.gov/sites/default/files/omb/bulletins/2014/b-14-02.pdf
52
Financial System Inventory Completeness and Accuracy
During fiscal year 2014, HUD’s financial system56 inventory, used by the agency to assess
compliance with FFMIA, was incomplete. Three Ginnie Mae systems were incorrectly excluded
from the financial system inventory due to communication issues between OCFO and HUD’s
components. The practice of program offices self-reporting systems without independent review
or evaluation also contributed to the incomplete inventory.
The maintenance of a comprehensive financial system inventory is essential to ensure complete
and accurate FFMIA reporting.
Conclusion
We reviewed HUD’s compliance with Section 803 of FFMIA as of September 30, 2013, and
found that HUD’s financial systems were not substantially FFMIA compliant. Despite moderate
progress toward compliance during 2014, we continued to report that HUD’s financial systems
did not substantially comply with FFMIA as of September 30, 2014.
Recommendations
We recommend that the Ginnie Mae Chief Financial Officer and HUD’s Assistant Chief
Financial Officer for Systems
9A. Enhance communication to appropriately identify mixed systems and include them
in the inventory of financial systems and
9B. Add the Integrated Pool Management System, Unclaimed Funds System, and
Reporting and Feedback System to the inventory of FFMIA financial and mixed
systems.
We recommend that the Chief Financial Officer
9C. Implement a periodic review process to independently evaluate system
classifications.
56
To include financial systems and mixed systems that compose the financial management system as defined by
OMB Memorandum M-13-23 (OMB Circular A-123, appendix D) (October 21, 2013, accessed October 9, 2014);
http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-23.pdf
53
Finding 10: Despite Substantial Progress, HUD Did Not Fully
Comply With the Antideficiency Act
In fiscal year 2014, HUD made demonstrable progress in moving older Antideficiency Act57
cases out of OCFO58 to OMB for review and approval. However, for the sixth consecutive year,
no Antideficiency Act violation was reported to the President, Congress, and the Comptroller
General at the end of fiscal year 2014 as required. Of the 1259 cases that had been open at least 1
year on September 30, 2014, 9 probable violations were at OMB for review, and 3 potential
violations were still under review at HUD. Untimely disposition of Antideficiency Act cases
could delay the implementation of corrective actions, including any needed safeguards required
to prevent recurrence of the same violations. While HUD management had committed to
reporting all violations when the HUD and OMB clearance processes are complete, the lack of
timeliness led us to conclude that HUD did not fully comply with the Act.
Progress Had Been Made, But Full Compliance Had Not Been Achieved
Although considerable progress had been made, older Antideficiency Act cases associated with
probable violations had not been reported to the President, Congress, and the Comptroller
General as of September 30, 2014.
Since fiscal year 2009,60 we have reported on HUD’s slow-moving progress in conducting,
completing, and closing the investigation of potential Antideficiency Act violations. During the
audit, we noted that HUD had made substantial headway in reviewing old cases. Of the 12 open
cases as of September 30, 2013, 4 cases, or 33 percent of cases open at least 1 year, had been
sent to OMB for review and approval, and 8 cases, or 67 percent of cases open at least 1 year,
were under HUD review. By September 30, 2014, nine cases, or 75 percent of cases open at
least 1 year, had been sent to OMB for review and approval, and three cases, or 25 percent of
cases open at least 1 year, were under HUD review.
57
31 U.SC. (United States Code) 1341, 1342, 1350, 1517, and 1519; Once it has been determined that there has
been a violation of 31 U.S.C 1341(a), 1342, or 1517(a), the agency head “shall report immediately to the President
and Congress all relevant facts and a statement of actions taken” in accordance with 31 U.S.C. 1351, 1517(b)
58
Public Law 108-7, Division K, Title II Department of Housing and Urban Development Appropriations, 2003,
granted HUD’s Chief Financial Officer, in consultation with the HUD budget officer, the “sole authority” to
investigate potential or actual violations under the Antideficiency Act and all other statutes and regulations related to
the obligation and expenditure of funds made available in any act. Further, the Appropriations Act provided that the
Chief Financial Officer must determine whether violations occurred and submit the final reports required by law.
59
Two additional potential cases were opened during 2014 but were excluded from analysis because HUD’s
investigation timeline policy allows up to 1 year for the completion of HUD’s investigation process.
60
See OIG’s fiscal year 2009 audit report 2010-FO-0003 for details.
54
Table 6
Percentage at
Total cases Under At OMB for
OMB for
open at least 1 HUD review and
review and
year review approval
As of: approval
September 30, 2013 12 8 4 33%
September 30, 2014 12 3 9 75%
HUD’s Antideficiency Act case processing timeframe policy is to complete the end-to-end
review within 1 year of referral or notification. However, HUD had not implemented its policy
for three cases as of September 30, 2014.
Conclusion
HUD did not fully comply with the Antideficiency Act. Although HUD sent five cases to OMB
during 2014 and increased the percentage of cases over 1 year old under OMB review from 33 to
75 percent, the clearance processes had not been completed as of September 30, 2014.
Therefore, the cases had not been reported to the President and Congress. As a result, HUD was
unable to achieve full Antideficiency Act compliance. HUD had exceeded its processing
timeframe for three cases as of September 30, 2014.
Recommendations
Prior-year recommendations regarding this finding remain open and can be referred to in the
Followup on Prior Audits section of this report. We have no new recommendations in this
report.
55
Finding 11: HUD Did Not Comply With the HOME Investment
Partnership Act
HUD continued to not comply with section 218(g) of the HOME Investment Partnership Act
(also known as the HOME Statute) regarding grant commitment requirements. HUD’s
misinterpretation of the plain language in the Act, the implementation of the cumulative method
and the FIFO technique, and the current recapture policies resulted in HUD’s noncompliance
with HOME Statute requirements. Further, HUD’s corrective action to assess compliance on a
grant-by-grant basis would only apply to fiscal year 2015 grants. Consequently, HUD
incorrectly permitted some jurisdictions to retain and commit HOME Investment Partnerships
Program grant funds beyond the statutory deadline. Additionally, HUD will continue to be
noncompliant with related laws and regulations until the cumulative method is no longer used to
determine whether grantees meet commitment deadlines required by the HOME Statute.
HUD Policies Did Not Comply With the HOME Statute
The HOME Statute required HUD to establish a HOME Investment Trust Fund for each
participating jurisdiction (grantee), with a line of credit that included the grantee’s annual
allocation. The Statute also required each grantee to place all of its annual allocation’s funds
under a binding commitment within 24 months after it received its line of credit. Failure to do
so would result in the grantee’s losing its right to draw any funds that were not placed under
binding commitment within the 24 months and require HUD to make such reductions and
reallocate the funds as soon as possible.
HUD implemented a process, called the cumulative method, to determine a grantee’s
compliance with the requirements of section 218(g) of the Statute and determine the amount to
be recaptured and reallocated with section 217(d). HUD measured compliance with the
commitment requirement cumulatively, disregarding the allocation year used to make the
commitments.
Further, as discussed in finding 1 of this report, HUD implemented the FIFO method to commit
HOME program funds, which created difficulty in determining what commitments were made
during the 24-month period. We continued to find this FIFO method to be a departure from
Federal GAAP.
The use of a noncumulative method would result in a number of grantees that would not meet the
24-month commitment deadline, resulting in grant funds that could possibly have been
recaptured and reallocated.
In fiscal year 2013, CPD agreed to implement changes to IDIS Online to eliminate the FIFO
method for fiscal year 2015 CPD formula grants (including the HOME program) beginning
September 30, 2014, using a three-phase process, which was scheduled to be completed by
October 2017. According to CPD, the system changes would allow HOME participating
jurisdictions to identify the grant year to which a specific HOME commitment should be
attributed for grants obligated after the change is implemented. Also, according to CPD, the
system would ensure that each specific HOME commitment would be counted only toward 1
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year’s 24-month commitment requirement and within the 24-month overlapping allocation
period.
CPD stated that once the applicable changes are made to the HOME regulations and IDIS
Online, HUD will stop using the cumulative method for determining compliance with the HOME
24-month commitment requirement for fiscal year 2015 grants and will be compliant with
section 218(g) of the HOME Statute for grants obligated after the system changes are
implemented. Compliance with the 24-month statutory commitment requirement for funds
obligated before the system and regulatory changes will still be determined on a cumulative
basis. Compliance with the 24-month statutory commitment requirement for funds obligated
after the system and regulatory changes will be determined on a grant-specific basis.
We took issue with CPD’s plan to continue determining compliance using a cumulative method
for funds obligated before the system and regulatory changes are made. HUD will continue to be
noncompliant with section 218(g) of the HOME Statute and other laws and regulations until the
cumulative method is no longer used (prospectively and retroactively) to determine whether
commitment deadlines required by the Statute are met by the grantees. OIG formally
communicated this position to HUD.
We will continue to work with CPD and OCFO to monitor the progress of HUD’s plan to
eliminate the FIFO and cumulative methods. During the next fiscal year, we will ensure that
IDIS uses a non-FIFO method to disburse fiscal year 2015 CPD formula grants and commit
HOME funds and that the cumulative method for determining compliance with the HOME
Statute is no longer in use. Further, we will ensure that there is an appropriate audit trail for
these processes.
Conclusion
While system changes to IDIS Online were in process for grants in fiscal year 2015 and forward,
HUD will continue to be noncompliant with the HOME Statute until the cumulative method is
no longer used to determine whether commitment deadlines required by Statute are met by the
grantees. We will continue to report that HUD is noncompliant with related laws and
regulations until the cumulative method is no longer used.
Recommendations
Prior-year recommendations regarding this finding remain open and can be referred to in the
Followup on Prior Audits section of this report. We have no new recommendations in this
report.
57
Scope and Methodology
This interim report is intended as a limited review of internal controls over financial reporting
and compliance with significant laws and regulations that impact the preparation of HUD’s
financial statements as part of HUD’s annual financial statement audit. The control deficiencies
noted in this report will also be reported in our fiscal year 2014 independent auditor’s report on
HUD’s consolidated financial statements. In performing this audit, we considered internal
controls over financial reporting by obtaining an understanding of the design of HUD’s internal
controls, determined whether these internal controls had been placed into operation, assessed
control risk, and performed tests of controls to determine our auditing procedures for the purpose
of expressing our opinion on the principal financial statements. However, we did not intend to
provide assurance regarding the internal controls over financial reporting and we are not
providing an opinion on internal controls. Likewise, review of HUD’s compliance with selected
provisions of laws, regulations, and government policies is an objective of the audit but we are
not providing an opinion on HUD’s compliance.
As this review was performed in support of HUD’s consolidated financial statement audit, to
fulfill our responsibilities, we
Examined, on a test basis, evidence supporting the amounts and disclosures in the
consolidated principal financial statements;
Assessed the accounting principles used and the significant estimates made by
management;
Evaluated the overall presentation of the consolidated principal financial statements;
Obtained an understanding of internal controls over financial reporting (including
safeguarding assets) and compliance with laws and regulations (including the execution
of transactions in accordance with budget authority);
Tested and evaluated the design and operating effectiveness of relevant internal controls
over significant cycles, classes of transactions, and account balances;
Tested HUD’s compliance with certain provisions of laws and regulations;
governmentwide policies, noncompliance with which could have a direct and material
effect on the determination of financial statement amounts; and certain other laws and
regulations specified in OMB Bulletin 14-02, including the requirements referred to in
FMFIA;
Considered compliance with the process required by FMFIA for evaluating and reporting
on internal controls and accounting systems; and
Performed other procedures we considered necessary.
We did not evaluate the internal controls relevant to operating objectives as defined by FMFIA.
We limited our internal controls testing to those controls that are material relative to HUD’s
financial statements. Because of inherent limitations in any internal control structure,
misstatements may occur and not be detected. We caution that projection of any evaluation of
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the structure to future periods is subject to the risk that controls may become inadequate because
of changes in conditions or that the effectiveness of the design and operation of policies and
procedures may deteriorate.
Our consideration of the internal controls over financial reporting would not necessarily disclose
all matters in the internal controls over financial reporting that might be significant deficiencies.
Our work was performed in accordance with generally accepted government auditing standards
and OMB Bulletin 14-02. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objective(s). We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
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Followup on Prior Audits
Not included in the recommendations listed after each finding are recommendations from prior-
year reports on HUD’s financial statements that have not been fully implemented based on the
status reported in the Audit Resolution and Corrective Action Tracking System (ARCATS).
Specifically, we identified 88 unimplemented recommendations from prior year reports dating
back to the audit of the fiscal years 2009 and 2008 financial statements. 40 of the 88
unimplemented recommendations were overdue for final action as of the date of this report.
HUD should continue to track these recommendations under the prior-year report numbers in
accordance with departmental procedures. Each of these open recommendations and its status is
shown below. Where appropriate, we have updated the prior recommendations to reflect
changes in emphasis resulting from recent work or management decisions.
Additional Details To Supplement Our Report on HUD’s Fiscal Years 2013 and 2012
(Restated) Financial Statements, 2014-FO-0003
With respect to CPD’s formula grant accounting noncompliance with GAAP, we recommended
that the Assistant Secretary for Community Planning and Development
1A. Develop and implement a detailed remediation action plan to ensure that grant
management systems eliminate the FIFO methodology in its entirety. The plan
should (1) explain how the budget fiscal year-TAFS [Treasury appropriation fund
symbols] for each accounting transaction (project and activity setup, commitment,
disbursement, etc.) will be recorded, remain constant, and be maintained, (2)
reference Federal system requirements and criteria, and (3) include resources,
specific remedies, and intermediate target dates necessary to bring the financial
management system into substantial compliance. (Final action target date was
September 30, 2014; reported in ARCATS as 1A.)
1B. Establish controls within the system, which provide an audit trail of the use of the
funds by the budget fiscal year-TAFS. (Final action target date was September
30, 2014; reported in ARCATS as 1B.)
With respect to CPD’s formula grant accounting noncompliance with GAAP, we recommended
that the Chief Financial Officer
1C. Provide oversight of CPD’s system implementation or modification to ensure that
Federal financial management accounting standards are embedded into the system
so that the information transferred from grant management systems to HUD’s
core financial systems comply with these standards, are recorded in HUD’s
consolidated financial statements in accordance with Federal GAAP, and ensure
that compliant administrative control of funds for its formula grant programs is
established. (Final action target date is October 30, 2015; reported in ARCATS
as 1C.)
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With respect to PIH’s Housing Choice Voucher program’s cash management process departing
from GAAP and Treasury requirements, we recommended that the Assistant Secretary for Public
Housing, in coordination with the Chief Financial Officer,
2A. Transition the PHA NRA excess funds, which are as much as $643.6 million as of
June 30, 2013, to HUD’s control as soon as possible to safeguard the program
resources. (Final action target date is December 31, 2014; reported in ARCATS
as 2A.)
2B. Identify PHAs with insufficient cash to cover their NRA and order the repayment
of funds. (Final action target date is December 31, 2014; reported in ARCATS as
2B.)
2C. Implement a cost-effective method for automating the cash management process
to include an electronic interface of transactions to the standard general ledger.
(Final action target date not listed; reported in ARCATS as 2C.)
With respect to PIH’s Housing Choice Voucher program’s cash management process departing
from GAAP and Treasury requirements, we recommended that the Chief Financial Officer
2D. Review the cash management process to identify all financial events to be
recognized in accordance with GAAP. Establish procedures to account for the
cash management activity in a timely manner in compliance with GAAP. (Final
action target is date April 8, 2015; reported in ARCATS as 2E.)
2E. Ensure that PIH’s automation of its cash management process complies with
Federal financial management requirements. (Final action target date is
December 31, 2015; reported in ARCATS as 2G.)
With respect to HUD’s inability to overcome weaknesses in the financial management systems,
we recommended that HUD’s Chief Financial Officer, in coordination with the Assistant
Secretary for Public and Indian Housing,
3A. Design and Implement a loan guarantee system that complies with the Guaranteed
Loan System Requirements. Ensure that the implemented loan guarantee system
should be integrated with HUD’s financial management systems and be included
in its financial management system plans. (Final action target date is December
31, 2015; reported in ARCATS as 3A.)
With respect to HUD’s inability to overcome weaknesses in the financial management systems,
we recommended that HUD’s Chief Financial Officer, in coordination with Ginnie Mae’s Chief
Financial Officer,
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3B. Develop and implement plans to ensure that Ginnie Mae’s core financial system is
updated to include functionality in the system to perform budgetary accounting at
a transaction level using the USSGL to comply with FFMIA requirements. (Final
action target date was November 30, 2014; reported in ARCATS as 3B.)
With respect to HUD’s weaknesses in the preparation and reporting processes for the
consolidated financial statement, we recommended that HUD’s Chief Financial Officer, in
coordination with Ginnie Mae’s Chief Financial Officer,
4A. Determine the amount of adjustments needed to correct the accounting and
reporting errors identified in Ginnie Mae’s Statement of Budgetary Resources for
fiscal years 2012 and 2013 and provide its analysis and support for its
determination. (Final action target date was November 30, 2014; reported in
ARCATS as 4E.)
With respect to HUD’s weaknesses in the preparation and reporting processes for the
consolidated financial statement, we recommended that the Chief Financial Officer
4B. Establish an appropriate accounting and financial reporting governance structure
within OCFO with the appropriate level of accounting, experience, and training to
support the size and complexity of HUD’s and its component entities’ financial
reporting requirements. (Final action target date is March 11, 2015; reported in
ARCATS as 4G.)
4C. Provide instructions to the component entities, such as the applicable GAAP and
accounting policies to be applied for external reporting. (Final action target date
is November 21, 2014; reported in ARCATS as 4H.)
With respect to HUD’s noncompliance with accruals under GAAP, we recommended that the
Chief Financial Officer, in conjunction with each of the program offices,
5A. Develop GAAP-compliant policies and procedures that require the development
and recordation of an accrual estimate for goods and services received and charge
card purchases incurred but not yet billed to ensure that HUD’s financial
statements are complete and properly stated in accordance with GAAP. (Final
action target date was October 1, 2014; reported in ARCATS as 5D.)
5B. Implement the GAAP-compliant policies and procedures developed under 5A
above and develop a methodology that accurately estimates accrual of expenses
incurred by HUD for goods and services received and charge card purchases
incurred but not yet billed. (Final action target date was October 1, 2014;
reported in ARCATS as 5E.)
With respect to HUD’s weakness in the reporting of accounts receivable, we recommended that
the Chief Financial Officer
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6A. Enforce already existing internal control procedures to ensure proper supervision
over accounting for Section 8 FAF receivables. (Final action target date was
October 1, 2014; reported in ARCATS as 6C.)
With respect to HUD’s weakness in the reporting of accounts receivable, we recommended that
the Chief Financial Officer, in conjunction with the Assistant Secretary for the Office of Housing
6B. Perform a thorough analysis of outstanding FAF [financing adjustment factor]
receivables and fiscal year 2013 collections to ensure that the receivables
accurately represent the amounts owed to HUD, including but not limited to
positive confirmations of outstanding receivable balances with the trustees. (Final
action target date is March 4, 2015; reported in ARCATS as 6D.)
With respect to HUD’s administrative control of funds system weaknesses, we recommended
that the Assistant Secretary for Public and Indian Housing
7A. Work with the Office of the Chief Financial Officer to review the Section 8 tenant-
based programs’ funds control plans and ensure that the proper point of obligation
is documented. (Final action target date is December 31, 2014; reported in
ARCATS as 7B.)
7B. Review the procedures in use for the Section 184 Indian Housing Loan Guarantee
Program to ensure that they provide assurance that obligations and expenditures
do not exceed limitations and update the funds control plans accordingly. (Final
action target date is April 1, 2015; reported in ARCATS as 7C.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Assistant Secretary for Community Planning and Development
8A. Review the status of these 1,855 expired contracts, which make up the $50.9
million; close out the contracts; and recapture the excess funds. (Final action
target date was September 30, 2014; reported in ARCATS as 8A.)
8B. Complete the closeout of any remaining CDBG-R [Community Development
Block Grant-Recovery Act] and HPRP [Homelessness Prevention and Rapid Re-
Housing Program] grants and forward all grant closeout agreement certifications
to OCFO for recapture. (Final action target date was September 30, 2014;
reported in ARCATS as 8B.)
8C. Deobligate $14,425,629 tied to 238 program obligations marked for deobligation
during the department wide unliquidated obligations review. Additionally, OCFO
should review the 93 obligations with remaining balances totaling $316,935 and
close out and deobligate amounts tied to obligations that are no longer valid,
either based on the criteria defining the availability of appropriations at 31
63
U.S.C.(United States Code) 1301 or the criteria for recording obligations at 31
U.S.C. 1501. (Final action target date is April 3, 2015; reported in ARCATS as
8C.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Assistant Secretary for Housing
8D. Deobligate $12,755,325 tied to 165 administrative obligations and $2,734,967 tied
to 25 program obligations marked for deobligation during the department wide
unliquidated obligations review. Additionally, the Office of Housing should
review the 429 obligations with remaining balances totaling $5,764,905 and close
out and deobligate amounts tied to obligations that are no longer valid, either
based on the criteria defining the availability of appropriations at 31 U.S.C. 1301
or the criteria for recording obligations at 31 U.S.C. 1501. (Final action target
date is April 2, 2015; reported in ARCATS as 8D.)
8E. Research and deobligate at least $9.3 million tied to the 115 inactive and/or
expired Section 202/811 funding lines. (Final action target date is April 2, 2015;
reported in ARCATS as 8E.)
8F. Review and deobligate at least $26 million tied to 215 inactive and/or expired
Section 8 obligations. (Final action target date is April 2, 2015; reported in
ARCATS as 8F.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Assistant Secretary for Public and Indian Housing
8G. Deobligate $5,555 tied to 17 administrative obligations marked for deobligation
during the department wide unliquidated obligations review. Additionally, the
Office of Public Housing should review the 299 obligations with remaining
balances totaling $1,331,460 and close out and deobligate amounts tied to
obligations that are no longer valid, either based on the criteria defining the
availability of appropriations at 31 U.S.C. 1301 or the criteria for recording
obligations at 31 U.S.C. 1501. (Final action target date is December 31, 2014;
reported in ARCATS as 8G.)
8H. Review and, if necessary, recapture all 212 operating subsidy (0163) funding lines
with remaining balances totaling $11 million. (Final action target date was
November 30, 2014; reported in ARCATS as 8H.)
8I. Develop formal procedures to annually determine which PHAs require a recapture
based on operating subsidy actual allocation figures and recapture the funds
immediately. (Final action target date is January 31, 2015; reported in ARCATS
as 8I.)
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With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Chief Human Capital Officer
8J. Deobligate the $2,483,254 tied to 12 administrative obligations marked for
deobligation during the department wide unliquidated obligations review.
Additionally, OCHCO should review the 730 obligations with remaining balances
totaling $10,227,309 and close out and deobligate amounts tied to obligations that
are no longer valid, either based on the criteria defining the availability of
appropriations at 31 U.S.C. 1301 or the criteria for recording obligations at 31
U.S.C. 1501. (Final action target date is December 31, 2014; reported in
ARCATS as 8J.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Chief Financial Officer
8K. Deobligate the $1,419 tied to three administrative obligations marked for
deobligation during the department wide unliquidated obligations review.
Additionally, OCFO should review the 42 obligations with remaining balances
totaling $3,115,954 and close out and deobligate amounts tied to obligations that
are no longer valid, either based on the criteria defining the availability of
appropriations at 31 U.S.C. 1301 or the criteria for recording obligations at 31
U.S.C. 1501. (Final action target date is December 31, 2014; reported in
ARCATS as 8K.)
8L. Design and implement a policy to ensure those reconciliations between the
subsidiary ledgers (supporting records) and the obligation balances in the general
ledger (controlling accounts) are periodically performed for all HUD
appropriations. The policy should also address the follow-up and clearance of
identified differences and the responsibilities for the preparers and reviewers.
(Final action target date is March 4, 2015; reported in ARCATS as 8M.)
8M. Work with the program offices to determine the ARRA funds that were not spent
by September 30, 2013; implement the manual process identified; and recapture,
to the extent permitted by law, the unspent ARRA funds and return them to
Treasury, including at least $4.7 million and $2.6 million in unspent grant funds
for the CDBG-R and HPRP programs, respectively. (Final action target date was
October 17, 2014; reported in ARCATS as 8N.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Chief Information Officer
8N. Deobligate $7,263,662 tied to 178 administrative obligations marked for
deobligation during the department wide unliquidated obligations review. (Final
action target date is February 13, 2015; reported in ARCATS as 8O.)
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With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Director of the Office of Departmental Equal Employment Opportunity
8O. Deobligate $2,244 tied to 10 administrative obligations marked for deobligation
during the department wide unliquidated obligations review. Additionally, the
Office should review the 10 obligations with remaining balances totaling $83,300
and close out and deobligate amounts tied to obligations that are no longer valid,
either based on the criteria defining the availability of appropriations at 31 U.S.C.
1301 or the criteria for recording obligations at 31 U.S.C. 1501. (Final action
target date is December 31, 2014; reported in ARCATS as 8P.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Office of Departmental Operations and Coordination
8P. Deobligate $12,277 tied to 19 administrative obligations marked for deobligation
during the department wide unliquidated obligations review. Additionally, the
Office should review the seven obligations with remaining balances totaling
$76,327 and close out and deobligate amounts tied to obligations that are no
longer valid, either based on the criteria defining the availability of appropriations
at 31 U.S.C. 1301 or the criteria for recording obligations at 31 U.S.C. § 1501.
(Final action target date is December 18, 2014; reported in ARCATS as 8R.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Director of the Office of Healthy Homes and Lead Hazard Control
8Q. Deobligate $3,488,009 tied to 23 program obligations marked for deobligation
during the Department wide Unliquidated Obligations Review. (Final action
target date is January 30, 2015; reported in ARCATS as 8T.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Assistant Secretary for Fair Housing and Equal Opportunity
8R. Review the 52 obligations with remaining balances totaling $145,060 and closeout
and deobligate amounts tied to obligations that are no longer valid, either based
on the criteria defining the availability of appropriations at 31 U.S.C. 1301 or the
criteria for recording obligations at 31 U.S.C. 1501. (Final action target date is
January 30, 2015; reported in ARCATS as 8U.)
With respect to HUD’s continuation of reporting significant amounts of invalid obligations, we
recommended that the Office of the Secretary
8S. Review the 41 obligations with remaining balances totaling $132,080 and close
out and deobligate amounts tied to obligations that are no longer valid, either
based on the criteria defining the availability of appropriations at 31 U.S.C. 1301
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or the criteria for recording obligations at 31 U.S.C. 1501. (Final action target
date is October 31, 2014; reported in ARCATS as 8Y.)
With respect to HUD’s ineffective financial management governance structure and internal
controls over financial reporting, we recommended that the Deputy Secretary of HUD
9A. Conduct a study on what improvements could be made in HUD OCFO to increase
compliance with the CFO Act agency requirements. (Final action target date is
December 17, 2014; reported in ARCATS as 9A.)
9B. After conclusion of the study, issue a directive or memorandum to HUD,
reemphasizing the Chief Financial Officer’s authority and responsibility for
department wide financial management and internal controls over financial
reporting and changes in any financial management governance. (Final action
target date is December 17, 2014; reported in ARCATS as 9B.)
9C. Create and chair a Senior Management Council or equivalent to ensure that HUD
remains committed to implementing and operating the recommendations made in
the study and ensure that an appropriate system of internal controls is in place.
(Final action target date is December 17, 2014; reported in ARCATS as 9C.)
With respect to HUD’s ineffective financial management governance structure and internal
controls over financial reporting, we recommended that the Chief Financial Officer
9D. Initiate and complete the selection process to fill vacant Assistant Chief Financial
Officer positions. (Final action target date is December 17, 2014; reported in
ARCATS as 9D.)
9E. Implement a function to monitor issuances of accounting standards and other
related guidance, determine the issuances’ impact on HUD, and develop and issue
new or updated policies and procedures as needed. (Final action target date was
October 24, 2014; reported in ARCATS as 9E.)
9F. Ensure that documented policies and procedures are in place for all of HUD’s
accounting processes and that they are periodically evaluated for necessary
updates. (Final action target date is June 30, 2016; reported in ARCATS as 9F.)
With respect to HUD’s weakness in rental housing assistance program monitoring, we
recommended that the Assistant Secretary for Public Housing
10A. Develop a risk assessment process that evaluates risk for all PHAs. Based on the
risk assessment determine which PHAs need to be reviewed within the fiscal year
to reasonably ensure VMS data is accurate and expenses are valid. (Final action
target date is December 31, 2014; reported in ARCATS as 10A.)
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10B. Allocate resources so that all of the reviews determined as necessary in the risk
assessment can be performed and clearly documented to show the qualitative and
quantitative findings. (Final action target date is December 31, 2014; reported in
ARCATS as 10B.)
10C. Develop and implement a mechanism to track the resolution process for all
Quality Assurance Division reviews and require field offices to use this system
during their follow-up. (Final action target date was April 30, 2015; reported in
ARCATS as 10D.)
10D. Develop and implement standard operating procedures for addressing PHAs that
have not submitted financial statements, including a process for assessing and
collecting late penalties in a consistent and timely manner. (Final action target
date is December 31, 2014; reported in ARCATS as 10E.)
With respect to the weakness of the financial and program management controls over the
Emergency Homeowner’s Loan Program, we recommended that the Office of Policy
Development
11A. Develop and implement procedures that establish internal controls over the SSS
EHLP to ensure compliance with program objectives through the duration of the
program. (Final action target date is December 31, 2014; reported in ARCATS as
11B.)
11B. Review the HUD-administered assistance obligations with remaining balances
totaling $24.3 million and close out and deobligate amounts tied to obligations
that are no longer valid or needed. (Final action target date is April 6, 2015;
reported in ARCATS as 11C.)
11C. Review the SSS assistance obligations for each State and deobligate as much as
$47.9 million tied to obligations that are no longer valid or needed. (Final action
target date is April 2, 2015; reported in ARCATS as 11D.)
11D. Develop and implement procedures to routinely evaluate the assistance and
administrative obligation balances for the HUD-administered and SSS
subcategories of EHLP to determine whether a valid need still exists and if not,
deobligate those balances. (Final action target date is April 6, 2015; reported in
ARCATS as 11E.)
With respect to HUD’s noncompliance with the Antideficiency Act, we recommended that the
Office of the Chief Financial Officer
12A. Make the review of ADA [Antideficiency Act] cases a priority by enforcing
HUD’s ADA case processing timeframe policy going forward and commit to a
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firm deadline for finalizing the review of the remaining old ADA cases. (Final
action target date was December 1, 2014; reported in ARCATS as 14A.)
With respect to HUD’s noncompliance with the HOME Investment Partnership Act, we
recommended that the Office of Community Planning and Development
13A. Make changes to IDIS Online, which will require grantees to specifically identify
the grant allocation year to which the commitment should be assigned and include
the commitment dates. The system should also allow HUD to ensure that
commitments made during overlapping allocations and periods are counted
toward only 1 year’s compliance requirements. (Final action target date is
October 30, 2015; reported in ARCATS as 15A.)
13B. Stop using the cumulative method and the deadline compliance report for
determining compliance with the 24-month commitment requirement in the
HOME Investment Partnership Act and use only the commitments made within
the 24-month period to determine compliance. (Final action target date is October
30, 2015; reported in ARCATS as 15B.)
13C. In accordance, with the GAO legal decision and opinion, take steps to identify and
recapture funds that remain uncommitted after the statutory commitment deadline
and reallocate such funds in accordance with the Act. (Final action target date is
October 30, 2015; reported in ARCATS as 15C.)
13D. Recapture funds from allocations during the 24-month overlapping period only
for grantees that do not comply with the 24-month commitment requirement.
(Final action target date is October 30, 2015; reported in ARCATS as 15D.)
Additional Details To Supplement Our Report on HUD’s Fiscal Years 2012 and 2011
Financial Statements, 2013-FO-0003
With respect to the material weakness that achieving substantial compliance with FFMIA
continued to challenge HUD, we recommended that OCFO
14A. Ensure that Section 108 Loan Guarantee program financial management system
requirements are incorporated into HUD’s core financial system improvement
program to get more transparent and complete information for financial and
management reports. (Final action target date is December 31, 2014; reported in
ARCATS as 1C.)
With respect to the significant deficiency that there were weaknesses in the monitoring of
PIH and the Office of Multifamily Housing Programs’ program funds, we recommended that
the Assistant Secretary for Public and Indian Housing
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15A. Ensure that the staffing and funding levels for the MTW program office are
adequate to provide proper oversight of the program. (Final action target date is
December 31, 2014; reported in ARCATS as 2F.)
With respect to the significant deficiency that HUD’s internal control over financial
reporting had serious weaknesses, we recommended that OCFO
16A. Revise HUD’s Debt Collection Handbook 1900.25, REV-4, to include
comprehensive procedures to ensure that amounts to be repaid from program
monitoring findings, repayment agreements, and other binding documents are
communicated to the accounting center for timely accrual of receivables. (Final
action target date was November 29, 2013; reported in ARCATS as 3B.)
16B. Develop and implement formal financial management policies and procedures
to require an annual evaluation by OCFO and applicable program offices of
all allowance for loss rates and other significant estimates currently in use to
ensure appropriateness. (Final action target date was November 29, 2013;
reported in ARCATS as 3C.)
With respect to the significant deficiency that CPD’s information and communication systems
had weaknesses, we recommended that CPD
17A. Develop internal controls to review field office compliance more frequent than
every 4 years, especially when findings have been identified in the past, and to
ensure that action plans operate effectively and have addressed the deficiencies
noted so that noncompliance is not repeated during the next quality management
review. (Final action target date was February 14, 2014; reported in ARCATS as
4B.)
With respect to the significant deficiency that HUD’s oversight of the administrative control
of funds process had weaknesses, we recommended that OCFO
17B. In coordination with the Office of the Deputy Secretary, emphasize the
importance of financial management for the administrative control of funds.
(Final action target date was March 15, 2014; reported in ARCATS as 5A.)
With respect to the significant deficiency that deficiencies existed in the monitoring of HUD’s
unliquidated obligations, we recommended that CPD
18A. Review the status of these expired contracts, which make up the $50.6 million,
and recapture excess funds for the contracts that have not been granted
extensions. (Final action target date was October 18, 2013; reported in
ARCATS as 6A.)
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18B. Review the 270 obligations with remaining balances totaling $432,147 and close
out and deobligate amounts tied to obligations that are no longer valid or needed.
(Final action target date was September 30, 2014; reported in ARCATS as 6B.)
With respect to the significant deficiency that deficiencies existed in the monitoring of HUD’s
unliquidated obligations, we recommended that the Office of the Chief Human Capital Officer
18C. Review the 714 obligations with remaining balances totaling $8,428,808 and
close out and deobligate amounts tied to obligations that are no longer valid or
needed. Additionally, the $448,022 in five obligations marked for deobligation
should be deobligated. (Final action target date was April 7, 2014; reported in
ARCATS as 6E.)
With respect to the significant deficiency that deficiencies existed in the monitoring of HUD’s
unliquidated obligations, we recommended that the Office of the Chief Information Officer
18D. Review the 357 obligations with remaining balances totaling $6,832,833 and
close out and deobligate amounts tied to obligations that are no longer valid or
needed. Additionally, the $618,560 in 45 obligations marked for deobligation
should be deobligated. (Final action target date is December 12, 2013; reported
in ARCATS as 6F.)
With respect to the significant deficiency that deficiencies existed in the monitoring of HUD’s
unliquidated obligations, we recommended that the Office of Housing
18F. Review the 588 obligations with remaining balances totaling $1,912,078 and
close out and deobligate amounts tied to obligations that are no longer valid or
needed. Additionally, $10,565,965 in 209 administrative obligations and
$145,006 in eight program obligations marked for deobligation should be
deobligated. (Final action target date was March 21, 2014; reported in
ARCATS as 6L.)
18G. Review the 69 inactive or expired obligations with $1,202,207 in remaining
balances and coordinate with OCFO to deobligate any funds that are determined
to be expired or inactive after review. (Final action target date was March 19,
2014; reported in ARCATS as 6O.)
18H. Deobligate the $2 million in remaining loan obligations for ineligible borrowers
under the Emergency Homeowners’ Loan Program. (Final action target date was
March 20, 2014; reported in ARCATS as 6P.)
With respect to HUD’s substantial noncompliance with the Antideficiency Act, we
recommended that OCFO
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19A. Establish policies and procedures for ensuring that investigators and all
individuals involved in the review or concurrence process do not have any
personal or external impairment that would affect their independence and
objectivity in conducting ADA reviews and investigations. (Final action target
date was March 15, 2014; reported in ARCATS as 9A.)
19B. For current and future investigations, determine the qualifications and
independence of personnel used at each stage of the investigation. (Final
action target date was March 15, 2014; reported in ARCATS as 9B.)
19C. Issue a legislative request for funding for additional staffing or to have ADA
investigations conducted by an independent external organization. (Final
action target date was November 29, 2013; reported in ARCATS as 9C.)
Additional Details To Supplement Our Report on HUD’s Fiscal Years 2011 and 2010
Financial Statements, 2012-FO-0003
With respect to the significant deficiency that HUD needs to improve the process for reviewing
obligation balances, we recommended that CPD
20A. Review the status of each of its homeless assistance contracts that make up the
$32 million OIG identified as excess funding and recapture excess funds for
expired contracts that have not been granted extension. (Final action target date
was February 6, 2013; reported in ARCATS as recommendation 2B.)
With respect to the significant deficiency that HUD needs to improve its administrative
control of funds, we recommended that OCFO
21A. Establish and implement procedures to ensure that all program codes that
disburse HUD’s funds have complete and approved funds control plans before
the funds can be disbursed. (Final action target date was April 27, 2013;
reported in ARCATS as recommendation 4A.)
21B. Establish and implement procedures to ensure that the funds control plans are
updated to include the new program codes and new appropriation
requirements. (Final action target date was April 27, 2013; reported in
ARCATS as recommendation 4B.)
With respect to the significant deficiency that HUD needs to continue improving its oversight
and monitoring of subsidy calculations, intermediaries’ performance, and use of Housing Choice
Voucher and operating subsidy program funds, we recommended that PIH
22A. Office of Housing report on income discrepancies at the 100 percent threshold
level as a supplemental measure; assign staff to review the deceased single-
member household and income discrepancy reports at least quarterly and follow
up with owners and management agents (O-A) listed on these reports; and
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include in the contract between HUD and O-As a provision for improper
payments that requires to resolve in a timely manner income discrepancies,
failed identity verifications, and cases of deceased single-member households.
(Final action target date was April 1, 2014; reported in ARCATS as
recommendation 5B.)
Additional Details To Supplement Our Report on HUD’s Fiscal Years 2010 and 2009
Financial Statements, 2011-FO-0003
With respect to the significant deficiency that HUD’s financial management systems need to
comply with Federal financial management system requirements, we recommended that CPD
23A. Cease the changes being made to IDIS for the HOME program related to the
FIFO rules until the cumulative effect of using FIFO can be quantified on the
financial statements. (Final action target date is June 15, 2015; reported in
ARCATS as recommendation 1A.)
23B. Change IDIS so that the budget fiscal year source is identified and attached
to each activity from the point of obligation to disbursement. (Final action
target date is June 15, 2015; reported in ARCATS as recommendation 1B.)
23C. 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 in addition, match the allocation of funds (activity funding) to the budget
fiscal year source of the obligation. (Final action target date is June 15, 2015;
reported in ARCATS as recommendation 1C.)
23D. Include as part of the annual CAPER [consolidated annual performance and
evaluation report] a reconciliation of HUD’s grant management system, IDIS, to
grantee financial accounting records on an individual annual grant basis, not
cumulatively, for each annual grant awarded to the grantee. (Final action target
date is June 15, 2015; reported in ARCATS as recommendation 1D.)
With respect to the significant deficiency that HUD needs to improve the process for reviewing
obligation balances, we recommended that OCFO, in coordination with the appropriate program
offices
24A. Review the 510 obligations that 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. (Final action target date was October 31, 2011; reported in
ARCATS as recommendation 2C.)
With respect to the significant deficiency that HUD needs to improve the process for reviewing
obligation balances, we recommended that the OCFO, in coordination with PIH
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24B. Recapture the full amount of obligations from these 434 PIH low-rent grants
totaling $174 million and return to the U.S. Treasury the total balance of
budgetary resources from invalid grants. (Final action target date was June 30,
2012; reported in ARCATS as recommendation 2N.)
With respect to the significant deficiency that CPD needs to improve its oversight of grantees,
we recommended that CPD
24C. Review the status of each of its homeless assistance contracts that make up the
$97.8 million OIG identified as excess funding and recapture excess funds for
expired contracts that have not been granted extensions. (Final action target
date was March 16, 2012; reported in ARCATS as recommendation 4A.)
With respect to the significant deficiency that HUD needs to improve its
administrative control of funds, we recommended that OCFO
24D. Establish and implement procedures to ensure accuracy and completeness of
ARRA [American Recovery and Reinvestment Act] funds control plans. (Final
action target date was December 30, 2011; reported in ARCATS as
recommendation 5B.)
With respect to HUD’s substantial noncompliance with ADA, we recommended that OCFO, in
coordination with the appropriate program offices
25A. Complete required steps on the six known potential ADA issues and report those
determined to be violations immediately to the President, Congress, and GAO as
required by 31 U.S.C. (United States Code) and OMB Circular A-11. (Final
action target date was December 30, 2011; reported in ARCATS as
recommendation 6A.)
25B. Investigate the potential ADA violation and other interagency agreements that
were similarly executed. If the investigation determines that an ADA violation
occurred, immediately report it to the President, Congress, and GAO as required
by 31 U.S.C. and OMB Circular A-11. (Final action target date was December
30, 2011; reported in ARCATS as recommendation 6B.)
Additional Details To Supplement Our Report on HUD’s Fiscal Years 2009 and 2008
Financial Statements, 2010-FO-0003
With respect to HUD’s substantial noncompliance with ADA, we recommended that OCFO, in
coordination with the appropriate program offices
26A. Complete the investigations and determine whether ADA violations have
occurred and if an ADA violation has occurred, immediately report to the
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President, Congress, and GAO. (Final action target date was March 11, 2011;
reported in ARCATS as recommendation 5A.)
26B. Report the six ADA violations immediately to the President, Congress, and GAO,
as required by 31 U.S.C. and OMB Circular A-11, upon receiving OCFO legal
staff concurrence with the investigation results. (Final action target date was
March 16, 2011; reported in ARCATS as recommendation 5B.)
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Appendixes
Appendix A
Schedule of Funds To Be Put to Better Use
Recommendation Funds to be put
number to better use 1/
2B. $423,000,000
6A. $119,900,000
6B. $10,408,513
6E. $31,008,694
6F. $3,458,166
6G. $4,576,896
6I. $23,500,000
6J. $23,291,833
6M. $13,025,983
6N. $221,540
6O. $4,235,471
6P. $1,749,913
6Q. $1,495,606
6S. $333,673
6T. $308,793
6U. $141,421
6V. $85,006
6W. $68,828
Totals $660,810,336
1/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an OIG recommendation is implemented. These amounts include
reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
implementing recommended improvements, avoidance of unnecessary expenditures
noted in preaward reviews, and any other savings that are specifically identified.
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Appendix B
Departmentwide Obligation Review – Schedule of Recommended Deobligations
OIG Review of HUD’s Departmentwide Unliquidated Obligation Review
Inactive – Invalid Obligations Identified by HUD but Not
Administrative Deobligated as of 9/30/14
Obligations
Program Recommended Administrative Program
Total
Office for Review Obligations Obligations
# $ # $ # $ # $
Housing 269 $19,624,446 613 $4,988,326 79 $6,395,922 692 $11,384,248
PIH 34 151,963 73 160,998 24 1,182,645 97 1,343,643
OCIO 171 19,730,791 64 3,561,042 0 0 64 3,561,042
OCHCO 65 1,383,565 99 366,348 0 0 99 366,348
FHEO 17 26,711 2 5,210 1 109,500 3 114,710
PD&R 10 76,642 2 136,391 2 8,507 4 144,898
OCFO 6 332,888 1 785 0 0 1 785
CPD 72 313,419 5 174,168 308 9,920,926 313 10,095,094
Chief
Executive
0 0 16 68,828 0 0 16 68,828
Officer, Office
of the Secretary
Office of
199 4,146,234 46 89,237 0 0 46 89,237
Administration
Public Affairs 0 0 12 85,006 0 0 12 85,006
FPM 50 308,793 0 0 0 0 0 0
Total 893 $46,095,453 933 $9,636,339 414 $17,617,500 1347 $27,253,839
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Appendix C
Federal Financial Management Improvement Act Noncompliance, Responsible Program
Offices, and Recommended Remedial Actions
This appendix provides details required under FFMIA reporting requirements. We noted
instances in which HUD’s systems did not substantially comply with FFMIA requirements. We
noted instances that resulted in a lack of substantial compliance with (1) Federal financial system
requirements, (2) Federal accounting standards, and (3) USSGL at the transaction level.
The organizations responsible for FFMIA noncompliant systems are as follows:
Responsible office Number of Nonconforming
compliant systems systems
Office of Housing 18 0
Office of the Chief Financial Officer 12 0
Office of the Chief Human Capital Officer 1 1
Office of the Chief Procurement Officer 1 2
Office of Community Planning and 2 1
Development
Office of Public and Indian Housing 1 0
Government National Mortgage Association 1 0
Totals 36 4
We have summarized HUD’s plan to correct instances of FFMIA noncompliance as submitted to
us as of September 30, 2014.
Systems That Do Not Comply With Federal Financial Systems Requirements
Facilities Integrated Resources Management System – The FIRMS application does not
comply with Federal financial management systems requirements. While HUD had identified
FIRMS as FFMIA noncompliant since 2010, technical issues, including a lapsed maintenance
contract, rendered FIRMS nonfunctional. OCHCO is responsible for FIRMS. We previously
recommended improvements to system interfaces with the financial system and the acquisition
system. While HUD had initially hoped to remediate FIRMS and perform a property inventory
by February 2014, resource constraints resulted in significant delays. To achieve eventual
FFMIA compliance and meet business requirements regarding property management, HUD
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planned to decommission FIRMS and transition to a shared service provider, the Federal
Aviation Administration.
HUD Procurement System and Small Purchase System – HPS and SPS are legacy
procurement applications that do not comply with FFMIA because they do not meet Federal
financial system requirements. HPS and SPS do not meet system requirements because as older
systems, they lack important functionality. OCPO is responsible for HPS and SPS. We
previously recommended the replacement of HPS and SPS, and in fiscal year 2012, OCPO began
implementing a new procurement system, HIAMS, to replace HPS and SPS. While HUD had
planned to decommission HPS and SPS, technical issues related to data migration delayed
decommissioning of the systems. HUD planned to decommission the HPS and SPS procurement
applications once technical issues associated with the migration were addressed and the data
transfer was complete.
Systems That Do Not Comply With Federal Accounting Standards and the U.S. Standard
General Ledger
Integrated Disbursement and Information System Online - IDIS does not comply with
applicable Federal accounting standards or USSGL at the transaction level. CPD is responsible
for IDIS Online. IDIS does not comply with Federal accounting standards because it was
configured to account for grant disbursement using the FIFO method and lacked key data
elements and controls essential to properly track or account for grant disbursement by the
conforming specific identification method. IDIS does not comply with USSGL because the
system was not configured to post transactions to appropriate general ledger accounts. We
previously recommended that HUD modify IDIS to account for grant disbursements by the
specific identification method and configure the system to record transactions in compliance with
USSGL. In addition to eliminating FIFO for fiscal year 2015 and the future, HUD planned to
add new data elements and configure new automated controls and accounting logic to achieve
FFMIA compliance.
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Appendix D
Auditee Comments and OIG’s Evaluation
Ref to OIG Auditee Comments
Evaluation
Comment 1
Comment 2
Comment 3
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Ref to OIG Auditee Comments
Evaluation
Comment 4
Comment 5
Comment 6
Comment 7
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Ref to OIG
Evaluation Auditee Comments
Comment 8
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OIG Evaluation of Auditee Comments
Comment 1 Preparing accurate and complete financial statements was a HUD management
responsibility that has been delegated to the OCFO. Due to HUD’s continued use
of the FIFO methodology for prior year formula grant programs it was HUD’s
financial reporting that were materially misstated, inaccurately presented, out of
compliance, and will continue to be a departure from GAAP. If OCFO does not
ensure that HUD takes the steps to quantify the misstatement, OIG will have to
continue to take exception to the presentation, accuracy, and compliance with
GAAP on HUD’s financial statements until the effects are determined to be
immaterial. This was consistently communicated to OCFO and HUD
management throughout the audit.
Comment 2 OIG acknowledges PIH’s progress to date on this issue and we will evaluate the
progress made in fiscal year 2015 in next year’s report. We have reviewed PIH’s
other comments. The finding contains statements PIH management made to the
OIG in meetings, interviews, and other correspondence during the course of field
work and was documented in our work papers. Any changes in position were
not reported to us until after the draft report was issued. Therefore no changes
will be made to the finding.
Comment 3 OIG recognizes CPD’s willingness to review and make improvements to their
grant accrual estimation methodology and estimates; however, the $1.9 billion
grant accrual estimate was outside of our statistically valid estimate. We
estimated the upper limit of CPD’s fiscal year 2013 grant accrual to be nearly
$1.54 billion. Due to timing we were unable to test CPD’s revised methodology
and estimate. We will review and evaluate CPD’s validation procedures during
the fiscal year 2015 audit.
In evaluating PIH’s detailed comments we reaffirmed our position that PIH did
not sufficiently validate their grant accrual estimate. The procedures described
are deficient because of both of the reasons listed in the report (1) The data used
did not allow PIH to account for all potential grant accruals as of HUD’s fiscal
year end, and (2) the methods did not take into account when expenses were
incurred by the grantee which is necessary to determine an accrual. The
accounting standards are clear that subsequent grantee reporting is to be used to
validate grant accrual estimates. Accordingly, the validation procedures were not
sufficient to satisfy the requirements of FASAB TR-12.
Comment 4 HUD acknowledged the substance of the finding, noting that the current financial
management systems framework needs to be re-engineered in order to improve
processes. Ultimately, management's disagreement is inconsequential as they
proceed with the New Core process to enhance effectiveness and efficiency of
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their financial systems and processes. Additionally, due to the continued phased
implementation time table, it we cannot conclude that the New Core project will
resolve all of HUD’s noncompliance issues at this time.
We are required to report on HUD’s compliance with FFMIA. The use of the
FIFO methodology in CPD’s formula grant accounting system was another
indication of HUD’s lack of substantial compliance with FFMIA. Therefore, it
will not be removed.
Comment 5 OMB Circular A-11, part 4 and 6 requires that all fund transactions accounted for
are properly identified. Funds control plans provide the reference to the
legislation that authorizes the use of funds and budgetary restrictions imposed by
Congress. Without a funds control plan or alternative document, HUD cannot
properly account for the utilization of the funds at the transaction level. Further,
program codes that do not have a corresponding funds control plan were
considered unsupported.
HUD began implementing compliance reviews of funds control plans in fiscal
year 2013. No reviews were completed for several years prior to this time.
Therefore, a full cycle was not completed and therefore, was not sufficient to
conclude that the risks have been mitigated. Further, these reviews were not
being conducted on program codes that do not have a funds control plan, therefore
a comprehensive review program was not in place in fiscal year 2014.
Comment 6 The PIH risk assessment model has not been fully implemented. As mentioned in
our report, PIH management has stated they do not expect it to be completed until
the end of fiscal year 2015.
In regards to reviews of VMS data, the language in the conclusion was revised to
provide clarification that while OIG did not find significant discrepancies in our
limited VMS review, until the recommendations are fully implemented, PIH does
not have adequate assurance that VMS self-reported data was accurate. We do
not believe the statement made about controls should be deleted in its entirety
because the Quality Assurance Division (QAD) was an important control over
VMS data and the division was understaffed the last few years. Congress
originally recommended in the fiscal year 2005 HUD appropriations to establish a
QAD to better monitor Section 8 spending and to be able to better control future
budget requirements. HUD was directed to provide a minimum of 75 Full Time
staff. While we understand that due to funding constraints and agency priorities,
it may be difficult to dedicate 75 staff to QAD reviews, QAD’s staffing levels in
the past couple of years was significantly lower than this, and many QAD staff
were used for shortfall prevention instead. We considered this a deficiency in the
control because QAD can only review VMS and NRA data for a very small
percentage of the PHA population. Therefore, the control was not fully
implemented and cannot function as an adequate internal control. Further, while
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HUD does validate VMS data using outlier testing, it does not ensure the accuracy
of the data, which is the objective of QAD reviews. As a result, the risk of
inaccurate VMS and NRA data increases. Consequently, PIH needs to ensure that
QAD has sufficient staff to conduct a reasonable amount of reviews to be
considered an adequate internal control. We discuss in the report that QAD will
have 7 new staff in FY 2015, we believe that the addition of 7 staff could improve
this control, however; these staff were not in place in 2014.
Comment 7 In addition to preparing accurate and complete financial statements; OCFO and
HUD managements were also responsible for ensuring that its programs were
compliant with financial management statutes, regulations and grant provisions.
Likewise, in addition to opining on HUD’s financial statements completeness,
accuracy and compliance with GAAP, we were also charged with determining
compliance with significant laws and regulations. Due to the current use of the
cumulative method for determining compliance with the HOME Statue, all
HOME grants awarded prior to fiscal year 2015 are at significant risk of
noncompliance with the statute as well as various aspects of Appropriation Law.
Further, it was management’s decision to not change the method of determining
compliance with the statute for fiscal year 2014 grants and prior. Therefore, it is
our responsibility to continue to report this issue as an instance of noncompliance.
Comment 8 We have reviewed the Department’s detailed comments and made changes
throughout the final report as appropriate.
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Interim Report on HUD's Internal Controls Over Financial Reporting
Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-12-10.
Below is a raw (and likely hideous) rendition of the original report. (PDF)