U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
OFFICE OF INSPECTOR GENERAL
June 16, 2016
MEMORANDUM NO:
2015-FO-0801
Memorandum
TO: Joseph I. Hungate
Deputy Chief Financial Officer, F
/s/
FROM: Thomas R. McEnanly
Director, Financial Audits Division, GAF
SUBJECT: Potential Antideficiency Act Violation
HOME Investment Partnerships Program
INTRODUCTION
We reported in fiscal years 2013 1 and 2014 2 that the U.S. Department of Housing and Urban
Development’s (HUD) formula grant accounting did not comply with generally accepted
accounting principles (GAAP), resulting in misstatements on the financial statements, and that
HUD did not comply with the HOME Investment Partnership Act (also known as the HOME
Statute). Further analysis indicated that HUD may also have incurred an Antideficiency Act
violation as a result of this noncompliance. We were particularly concerned about a potential
Antideficiency Act violation regarding HOME Investment Partnerships Program funds based on
HUD’s implementation of the cumulative method to meet commitment deadlines; specifically,
its use of the first-in, first-out (FIFO) method to commit and disburse funds for this program. 3
1
Additional Details To Supplement Our Report on HUD’s Fiscal Years 2013 and 2012 (Restated) Financial
Statements, Finding 1: CPD’s [Office of Community Planning and Development] Formula Grant Accounting Did
Not Comply with GAAP, Resulting in Misstatements on the Financial Statements, pages 4-8, and Finding 15: HUD
Did Not Comply With the HOME Investment Partnership Act, pages 93-95, Audit Report 2014- FO-0003, issued
December 16, 2013
2
Interim Report on HUD’s Internal Controls Over Financial Reporting, Finding 1: CPD’s Formula Grant
Accounting Did Not Comply With GAAP, Resulting in Misstatements on the Financial Statements, pages 4-6, and
Finding 11: HUD Did Not Comply With the HOME Investment Partnership Act, pages 56-57, Audit Report 2015-
FO-0002, issued December 8, 2014
3
The Federal Accounting Standards Advisory Board (FASAB) Handbook defines FIFO as a cost flow assumption;
the first goods purchased or produced are assumed to be the first goods sold (FASAB Handbook Version 13,
appendix E, page 30, dated June 2014). In addition, the Financial Audit Manual (FAM) states that the use of “first-
These methods have incorrectly permitted some jurisdictions to retain and commit HOME
program grant funds beyond the statutory deadline. The Antideficiency Act prohibits Federal
agencies from obligating or spending Federal funds in advance or in excess of an appropriation,
apportionment, or certain administrative subdivisions of those funds. Our objective was to
determine whether grant funds were obligated and spent in accordance with statutory
requirements.
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.
METHODOLOGY AND SCOPE
To accomplish our objective, we
• Researched accounting literature directly applicable to Federal agency accounting, such as
the Statement of Federal Financial Accounting Standards; Federal financial management
statutes; and authoritative literature from the U.S. Government Accountability Office (GAO),
the U.S. Department of the Treasury’s Financial Management Division, and the Office of
Management and Budget (OMB);
• Obtained expert opinions from relevant parties at GAO and OMB;
• Obtained legal advice from the HUD Office of Inspector General’s (OIG) Office of Legal
Counsel and HUD’s Office of General Counsel;
• Interviewed HUD employees; and
• Reviewed obligation and expenditure reports from HUD’s Integrated Disbursement and
Information System (IDIS) Online, Program Accounting System, and Line of Credit Control
System for fiscal years 2013 and 2014.
BACKGROUND
The HOME Statute requires HUD to establish a HOME Investment Trust Fund for each
participating jurisdiction (grantee), with a line of credit that includes the grantee’s annual
allocation. Section 218(g) of the Statute requires each grantee to place all of its annual
allocation’s funds under a binding commitment within 24 months after it receives its line of
credit. Failure to do so would result in the grantee’s losing its right to draw any funds that were
in, first-out” or other arbitrary means to liquidate obligations based on outlays is not generally acceptable (GAO-
PCIE (President’s Council on Integrity and Efficiency) FAM, Internal Control Phase, Budget Control Objectives,
page 395 F-3). In the context of HUD’s use of this method, the first funds appropriated and allocated to the grantee
are the first funds committed and disbursed, regardless of the source year in which grant funds were committed for
the activity.
2
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 uses a process, called the cumulative method, to determine a grantee’s compliance with the
requirements of the HOME Statute and determine the amount to be recaptured and reallocated in
accordance with section 217(d) of the Statute. HUD measures compliance with the commitment
requirement cumulatively, disregarding the allocation year used to make the commitments. For
the cumulative method, HUD considers all commitments made by the grantee from the
program’s beginning in 1992 to the current 24-month commitment deadline to determine
whether the grantee has committed the required amount of funds. On the other hand, the use of a
noncumulative method, or determining compliance on a grant year basis only, would result in a
number of grantees not meeting the 24-month commitment deadline per grant year. Thus, a
noncumulative method would likely result in an increased amount of grant funds that could be
recaptured and reallocated to compliant grantees.
The cumulative method described above is used because of HUD’s use of the FIFO method. The
FIFO method that is embedded within IDIS Online does not allow commitments to be separated
or identified by the dates on which the commitments were made, making it difficult to determine
what commitments were made during the 24-month period in question. OIG reported that the
FIFO method to commit and disburse Office of Community Planning and Development (CPD)
formula grant program funds, including the HOME program, is a departure from Federal GAAP
because disbursements are not matched to obligations (or commitments) and, thus, obligations
are improperly liquidated. Specifically, the use of FIFO by IDIS Online makes it noncompliant
with OMB Circular A-127, Federal Financial Systems Requirements, due to the inadequate
budget controls and misuse of United States Standard General Ledger (USSGL) attributes at the
transaction level for CPD’s formula grant disbursements.
In OMB’s role of ensuring that agency reports, rules, testimony, and proposed legislation are
consistent with the President’s budget and the Administration’s policies and through its oversight
and coordination of the Administration’s procurement, financial management, information, and
regulatory policies, OMB notified HUD in fiscal year 2013 to discontinue the use of FIFO for
commitments and disbursements of CPD grant funds.
Additionally, GAO shares OIG’s opinion that the language in the HOME Statute is clear
regarding how HUD should determine compliance with the commitment requirement of the
HOME Statute and recapture funds from noncompliant grantees. 4 Therefore, HUD’s cumulative
method does not comply with the Statute. Accordingly, GAO advised HUD, in a formal opinion,
to stop using the cumulative method, take steps to identify and recapture funds that remain
uncommitted after the statutory commitment deadline, and reallocate such funds in accordance
with the Statute.
4
Title II of the Cranston-Gonzalez National Affordable Housing Act, as amended, section 218(g), states, “If any
funds becoming available to a participating jurisdiction under this title are not placed under binding commitment to
affordable housing within 24 months after the last day of the month in which such funds are deposited in the
jurisdiction’s HOME Investment Trust Fund shall expire. The Secretary shall reduce the line of credit in the
participating jurisdiction’s HOME Investment Trust Fund by the expiring amount and shall reallocate the funds by
formula in accordance with section 217(d).”
3
CPD has 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 and future grants and will comply with
section 218(g) of the HOME Statute for grants obligated after the system changes are
implemented. However, compliance with the 24-month statutory commitment requirement for
funds obligated before the system and regulatory changes are fully implemented will continue to
be determined on a cumulative basis.
OIG’s Office of Legal Counsel met with HUD’s Office of General Counsel in 2014 to discuss
OIG’s concerns regarding HUD’s potential for an Antideficiency Act violation for the HOME
program due to CPD’s continued use of the cumulative method for HOME appropriations up to
fiscal year 2015. The Office of Legal Counsel suggested to HUD during the discussions that it
update its opinion to address this issue. Instead, the information and documents provided by
HUD have not addressed whether there was a violation of the Antideficiency Act specifically in
this case but, rather, the general position that the Office of General Counsel and not GAO is the
legal arbiter for executive agencies and that the Office of General Counsel has opined that there
is no violation if the statutory provision violated (HOME Statute) is not part of an appropriations
act.
However, in a memorandum issued in October 2014, OIG’s Office of Legal Counsel warned that
GAO and OMB would likely not agree that HUD’s good faith misinterpretation of the HOME
Statute or an explanation of the cost or difficulty of retroactive FIFO correction would avoid a
violation according to OMB guidance, GAO precedent, and appropriations law. The Office of
Legal Counsel stated that both OMB guidance and GAO precedent suggest that a request for
supplemental appropriation is a solution when the discontinuation of the activity is an issue. The
Office of Legal Counsel also stated in the memorandum, “It is unclear how HUD can simply
continue to obligate funds which exceed statutory limitations, in violation of the Anti-Deficiency
Act, without disclosing the violation and taking steps to mitigate it.”
Federal employees who violate the Antideficiency Act are subject to two types of sanctions:
administrative and penal. Employees may be subject to appropriate administrative discipline,
including when circumstances warrant, suspension from duty without pay or removal from
office. In addition, employees may be subject to fines, imprisonment, or both.
Further, we were informed that CPD systems were not approved to receive development,
modernization, and enhancement funds for fiscal year 2015 or 2016. Therefore, CPD has had to
stop work on the FIFO elimination plan. The work stoppage leaves IDIS Online in a state of
partial implementation. Thus, changes to IDIS Online according to the FIFO elimination plan,
including the removal of the cumulative method for HOME commitment compliance for fiscal
year 2015 grants and forward, will be shelved and restarted months or years later when funding
is made available.
4
RESULTS OF REVIEW
During the fiscal year 2013 financial statement audit, we determined the commitment status,
based upon a noncumulative approach, for 287 HOME grantees for the 2011 annual allocation
commitment requirement. 5 We noted that 132 grantees had met the commitment requirement
based upon HUD’s cumulative method but did not meet the requirement based upon OIG’s
noncumulative method. Further, we found that 36 grantees did not meet the requirement based
upon either method. These findings resulted in a total net difference of $54.86 million, which
could possibly have been recaptured and reallocated if HUD had used the noncumulative
calculation and grantees did not provide evidence to support commitments that were not entered
into IDIS Online.
Further, we reviewed fiscal year 2010 grantees with a commitment deadline of April 30, 2012,
which included 73 grantees. Of the 73, we followed up on a sample of 12 to determine whether
HOME funds had been committed after the statutory deadline. We found that 3 of the 12
grantees committed $784,739 after the April 30, 2012, deadline. Additionally, we noted that 1
grant year can overlap 2 fiscal years within a 24-month commitment period. If this overlap
occurs and recapture is necessary because the full commitment requirement is not met by the
grantee, the recapture can take place from another year’s annual allocation. However, the
recapture must be taken from an annual allocation within the same 24-month window, typically
the following allocation year in question. Thus, HUD allowed reductions to grant allocations
outside the 24-month annual allocation window to resolve findings of noncompliance.
The Antideficiency Act prohibits Federal agencies from making or authorizing an expenditure or
obligation exceeding an amount available in an appropriation or fund for the expenditure or
obligation. It also prohibits HUD from involving the Government in any obligation to pay
money before funds have been appropriated for that purpose unless otherwise allowed by law
(31 U.S.C. (United States Code) 1341(a)(1)(B)); accepting voluntary services for the United
States or employing personal services not authorized by law, except in cases of emergency
involving the safety of human life or the protection of property (31 U.S.C. 1342); or making
obligations or expenditures in excess of an apportionment or reapportionment or in excess of the
amount permitted by agency regulations (31 U.S.C. 1517(a)).
The cumulative method to determine compliance with the HOME Statute’s 24-month
commitment deadline incorrectly permitted some jurisdictions to retain and commit HOME
program grant funds beyond the statutory commitment deadline. If funds are retained by
grantees beyond the statutory deadline, HUD may incur an Antideficiency Act violation if the
funds that are inappropriately retained and not recaptured remain available for obligation or
expenditure by the grantee.
In fiscal year 2014, we found that HUD continued to use the cumulative and FIFO methods for
commitments and disbursements. Therefore, we concluded that the conditions remained and the
potential for an Antideficiency Act violation continued to exist.
5
Audit Report 2014-FO-0003, Additional Details To Supplement Our Report on HUD’s Fiscal Years 2013 and
2012 (Restated) Financial Statements, page 94, issued December 16, 2013
5
CONCLUSION
While the system changes to IDIS Online are in process, HUD will continue to be noncompliant
with the HOME Statute until the cumulative method is no longer used for all grant years. Our
analysis in fiscal year 2013 indicated that funds that should have been recaptured were later
recommitted and obligated, meeting the definition of an Antideficiency Act violation.
RECOMMENDATIONS
We recommend that the Chief Financial Officer
1A. Open an investigation and determine the impact of FIFO and the cumulative method for
commitments for the HOME program on HUD’s risk of an Antideficiency Act violation.
1B. As part of the investigation, obtain a legal opinion from GAO and OMB to determine
whether maintaining the cumulative method for determining compliance with the
HOME Statute results in noncompliance with the Statute and potential Antideficiency
Act violations.
1C. If HUD incurred an Antideficiency Act violation, comply with the reporting
requirements at 31 U.S.C. 1351 and 1517(b) and OMB Circular No. A-11, Preparation,
Submission, and Execution of the Budget, section 145 (June 21, 2005).
6
APPENDIXES
Appendix A
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 2
7
Comment 3
Comment 4
Comment 5
8
OIG Evaluation of Auditee Comments
Comment 1 HUD’s general comment is that it continues to be concerned about OIG’s position
on HUD’s prospective changes to eliminate the FIFO method for disbursements
and the cumulative method for HOME commitments. HUD continues to maintain
that it has always had a sound legal, financial, and rational basis for its use of the
cumulative method for the HOME commitment requirement and the FIFO method
of accounting.
OIG does not agree that HUD’s good faith misinterpretation of the HOME statute
or its rationale for the FIFO method of accounting excuses it from the impact of
billions of dollars annually in program disbursements from fiscal year 2014 and
prior-year funds that are still at risk of practices that do not comply with GAAP or
Federal laws and regulations.
Comment 2 HUD maintains that its prospective change is consistent with footnote 10 of the
GAO Decision (B-322077), since it states that if “an agency fails to comply with
a statutory requirement, it is incumbent upon the agency to correct, or otherwise
minimize, the non-compliance if it is able to do so.”
As we stated in the background section of this memorandum, the OIG does not
agree that the cost or difficulty of retroactive FIFO correction would avoid a
violation according to OMB guidance, GAO precedent, and appropriations law.
We have reported that the effects of not removing the FIFO and cumulative
methods retroactively will continue to have implications for HUD’s future years’
financial statement audit opinions until the impact of these methods is assessed to
be immaterial.
Comment 3 HUD states that it is unclear from the draft how it may have technically violated
the Antideficiency Act.
The draft memorandum states that the cumulative method to determine
compliance with the HOME Statute’s 24-month commitment deadline has
incorrectly permitted some jurisdictions to retain and commit HOME program
funds beyond the statutory commitment deadline. The memorandum states that
OIG’s analysis indicated that due to its use of the cumulative method, HUD
allowed reductions to grant allocations outside the 24-month allocation window.
Specifically, OIG’s analysis in fiscal year 2013 indicated that funds that should
have been recaptured after the 24 month statutory deadline were instead later
retained, committed and obligated by the grantee. HUD may have violated the
parts of the Act that prohibit Federal agencies from making or authorizing an
expenditure or obligation exceeding an amount available in an appropriation or
fund for the expenditure or obligation and that prohibit Federal agencies from
making obligations or expenditures in excess of an apportionment or
reapportionment or in excess of the amount permitted by agency regulations.
9
If funds are retained and committed by grantees beyond the statutory deadline,
OIG concluded that HUD may incur an Antideficiency Act violation.
Comment 4 HUD states that it did not receive a request from OIG regarding the continued
operation of FIFO for grant funds from fiscal years before 2015 and that it is,
therefore, wrong to state that it failed to respond to such a request.
We consulted with the Office of Legal Counsel and revised the paragraph in the
draft memorandum to portray the events that occurred. See paragraph 7 under the
Background section for the revised language.
Comment 5 HUD stated that CPD’s funding status regarding the necessary and appropriate
changes to IDIS is different from that described in the draft memorandum.
OIG obtained HUD’s most recent expenditure plan (updated May 2015) for the
FIFO elimination project for IDIS. The plan confirms that work on this project
ceased in May 2015 as an additional $1.9 million is needed to complete the
project. The plan states that necessary changes related to FIFO, including the
removal of the cumulative method for HOME commitment compliance for fiscal
year 2015 grants and forward, are on hold until additional funding to complete the
project is obtained. Thus, OIG finds the statements in its draft memorandum
regarding the projects’ funding status to be accurate.
cc:
Cliff Taffet, General Deputy Assistant Secretary, Community Planning and Development, D
Harriet Tregoning, Principal Deputy Assistant Secretary, Community Planning and
Development, D
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H:\AUDIT\FINANCIAL AUDIT DIVISION (GAF)\ 2015-FO-0801 ADA FIFO HOME
Cumulative Method - Final
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Potential Antideficiency Act Violation HOME Investment Partnerships Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-06-16.
Below is a raw (and likely hideous) rendition of the original report. (PDF)