oversight

HUD Did Not Always Follow Applicable Requirements or Use Best Practices in the Procurement and Administration of Its Multifamily Servicing Contract

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-12-02.

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

        Office of the Chief Procurement
           Officer, Washington, DC
   Contract for Multifamily Mortgage Loan and Property
         Management Servicing and Accounting




Office of Audit, Region 2     Audit Report Number: 2015-NY-0001
New York, New Jersey                            December 2, 2014
To:            Keith Surber
               Acting Chief Procurement Officer, AC

               Nancie Ann Bodell
               Acting Director, Office of Asset Management and Portfolio Oversight, HTG

               //SIGNED//
From:          Edgar Moore
               Regional Inspector General for Audit, New York, New Jersey Region, 2AGA

Subject:       HUD Did Not Always Follow Applicable Requirements or Use Best Practices in
               the Procurement and Administration of Its Multifamily Servicing Contract


         Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of HUD’s procurement and administration
of its contract for multifamily mortgage loan and property management servicing and
accounting.
        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 (212) 264-4174.
                    Audit Report Number: 2015-NY-0001
                    Date: December 2, 2014

                    HUD Did Not Always Follow Applicable Requirements or Use Best Practices
                    in the Procurement and Administration of Its Multifamily Servicing Contract




Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) procurement and
administration of its multifamily mortgage loan and property management servicing and
accounting contract. We conducted this review based on concerns communicated to the HUD
Office of Inspector General (OIG) by the Federal Housing Commissioner and HUD housing
officials. The objectives of the audit were to determine whether HUD officials (1) ensured that
the contract scope of services was appropriate and necessary, (2) maximized competition, (3)
provided sufficient oversight and monitoring, and (4) provided adequate communication and
coordination among the departments involved.

What We Found
HUD officials ensured that the scope of services was appropriate and necessary but did not
always follow applicable requirements or use best practices in the procurement and
administration of HUD’s contract for multifamily mortgage loan and property management
servicing and accounting. Specifically, HUD officials did not sufficiently track contract
payments, identify and deobligate excess funds at contract closeout, or ensure adequate
communication and coordination with the departments involved with this contract. Also, HUD
officials did not obtain sufficient bidders; ineffectively selected the procurement method used,
and did not maximize vendor awareness and visibility for this contract. We attributed these
deficiencies to HUD’s high rate of turnover and lack of central and consistent accountability and
communication in the offices responsible for this contract.

What We Recommend
We recommend that HUD officials (1) deobligate the almost $10 million in excess obligations on
HUD’s most recent award of the contract for these services and ensure that these funds are put to
better use, and (2) implement procedures to ensure that obligated amounts are tracked and are
consistent with funding needs, consistent oversight, accountability, and communication are
promoted, best practices are followed to provide maximum competition, and decisions are made
with the input of all parties involved.
Table of Contents
Background and Objectives ....................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: HUD Did Not Adequately Administer Its Multifamily Mortgage Loan
                    and Property Management Servicing and Accounting Contract ............. 5

         Finding 2: HUD Officials Did Not Always Follow Best Practices in Their
                    Procurement of HUD’s Multifamily Mortgage Loan and Property
                    Management Servicing and Accounting Contract ..................................... 8

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

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

Appendixes ..............................................................................................................15
         A. Schedule of Funds To Be Put to Better Use ............................................................ 15

         B. Auditee Comments and OIG’s Evaluation ............................................................. 16




                                                            2
Background and Objectives
The U.S. Department of Housing and Urban Development’s (HUD) Office of the Chief
Procurement Officer (OCPO) was created in 1998 as part of the HUD 2020 Management Reform
Plan to serve as the focal point to reform, streamline, and improve procurement operations.
OCPO is responsible for obtaining all contracted goods and services required by HUD in an
efficient and cost-effective manner to enable HUD to meet its strategic objectives. OCPO
provides vital logistic support to HUD’s program offices and other support offices to meet their
mission needs and provides leadership throughout HUD for sound business practices.

HUD OCPO regularly executes a contract to provide multifamily mortgage loan servicing and
accounting, property management servicing and accounting, and sections 202 and 811 direct loan
Uniform Commercial Code (UCC) setup and maintenance. The specific functions included
under the contract were:

      HUD-held loan servicing – Cashiering and servicing functions on HUD-held multifamily
       notes, Mark-to-Market Program notes, and Portfolio Reengineering Demonstration
       Program notes.
      Sections 202 and 811 direct loan UCC filing setup, and maintenance – Logging, tracking,
       and renewing required UCC documents.
      Property disposition – Tracking the management and sale of properties.
      Accounting – Maintaining accounting records for HUD-held notes.
      Information technology – Creating and maintaining a system to house all data related to
       the servicing of HUD-held notes and property disposition tracking.

HUD officials stated that this service contract had been awarded to the same contractor,
Dynaxys, LLC, for more than 20 years, resulting in approximately $357 million in contract
payments. This amount included an average annual contract amount of nearly $17 million over
the past 5 years. During this period, approximately 2,700 multifamily assets were serviced
annually. Therefore, the Office of Multifamily Housing Programs (MFH) paid around $6,296
per asset serviced each year. Dynaxys, LLC, proposed a renewal of the contract of
approximately $20 million annually for the next 5 years beginning in late 2013. HUD’s most
recent award of the contract, number C-OPC-23316, occurred on September 30, 2008 and
expired on September 29, 2013 Since then HUD has executed two separate one year bridge
contracts with Dynaxys.

Dynaxys, LLC, is a privately held business, which was founded in 1981 and was known as
Dynamic Access Systems, LLC, until January 2007. It is based in Silver Spring, MD, and offers
financial services software; accounting services; application hosting; and outsourcing services
for government, commercial, and nonprofit markets and also provides consulting services.

The objectives of the audit were to determine whether HUD officials (1) ensured that the
contract scope of services was appropriate and necessary, (2) maximized competition, (3)



                                               3
provided sufficient oversight and monitoring, and (4) provided adequate communication and
coordination among the various departments involved.




                                              4
Results of Audit
Finding 1: HUD Did Not Adequately Administer Its Multifamily
Mortgage Loan and Property Management Servicing and
Accounting Contract
HUD did not adequately administer its multifamily loan and property management servicing and
accounting contract with Dynaxys, LLC. Specifically, MFH officials did not sufficiently track
contract payments, identify excess funds to be deobligated at the time of contract closeout, or
adequately communicate and coordinate with the OCPO on this contract. The administration of
this contract was hindered by a high rate of turnover in both offices. Consequently, funds were
not properly safeguarded resulting in numerous duplicate payments and nearly $10 million in
excess funding not being deobligated almost a year after the end of the contract period. In
addition, inadequate communication led to decisions related to the contract being made without
the input of all involved parties, which led to disagreements and dissatisfaction. The obligated
balance of almost $10 million can be considered a savings when made available for other
contract obligations or returned to the Treasury.

Insufficient Tracking of Contract Payments
HUD MFH officials did not sufficiently track payments related to HUD’s multifamily loan and
property management servicing and accounting contract with Dynaxys, LLC. We examined the
payment records maintained by HUD officials in various offices. These records were incomplete
and unorganized, which hindered access and tracking. The records also did not include sufficient
payment registers for the entire term of the most recent award. Section 12-4 of HUD Handbook
2210.3, REV-9 states that the government technical representative shall maintain a working file
for each contract they are assigned, which includes all vouchers and a payment register showing
any remaining funds. This lack of documentation did not permit adequate tracking of contract
funds throughout the term of HUD’s contract with Dynaxys, LLC.

Throughout the term of HUD’s most recent award of the contract, there were a number of
occurrences of overpayments by HUD officials. These overpayments were identified by
Dynaxys, LLC, officials and later refunded or credited to HUD. However, it is HUD MFH
officials’ responsibility to be aware of the invoice amounts and amounts to be disbursed. HUD
MFH officials did not adequately track contract payments, and its assets were not safeguarded.
The administration of this contract was hindered by a high rate of turnover in both MFH and
OCPO.

Failure To Deobligate Excess Funds at Contract Closeout
HUD’s most recent award of this contract was signed on September 30, 2008, and had 1 base
year and 4 option years. At the end of the contract on September 29, 2013, there was a balance
of excess funds obligated. The Federal Acquisition Regulation at 48 CFR (Code of Federal
Regulations) 4.804-5(a)(15) requires that the administrative closeout of the contract be initiated
after its completion. At the beginning of this process, the government technical representative


                                                 5
from MFH must inform the OCPO of any excess funds it might deobligate. When complete, the
administrative closeout procedures must ensure that a contract funds review is completed and
excess funds are deobligated. However, at the time of our review, HUD officials had not
deobligated the excess funds.

HUD officials obligated more than $83 million for this contract, including more than $16 million
for each of the 4 option years, even though there were a declining number of loans in the
portfolio. Consequently, HUD disbursed about $73 million to Dynaxys, LLC, for contract
payments throughout the full term of the contract. HUD officials had deobligated $591,500
during the base year of the contract, leaving an unliquidated obligation balance of almost $10
million1 at the time of contract closeout on September 29, 2013. Although, HUD officials were
told about these excess funds by Dynaxys, LLC, they had not deobligated them. Thus, they
failed to meet their responsibility to review the contract funds status and identify any excess
funds to deobligate at the start of the contract closeout process.

HUD MFH officials did not reconcile the amounts obligated and disbursed for this contract.
High turnover of officials appointed to administer the contract contributed to these failures. As a
result, the unliquidated obligation balance of almost $10 million can be considered a savings
when made available for other contract obligations or returned to the Treasury.

Inadequate Communication Among HUD Officials
The administration of HUD’s contract with Dynaxys, LLC, was hindered by the inadequate
communication among HUD officials involved, including those in MFH and OCPO.
Specifically, HUD officials identified many instances of disagreement and lack of cooperation
among those involved with this contract.

The lack of adequate communication was partly due to the high employee turnover. Specifically,
during the 5-year term of the most recent contract with Dynaxys, LLC, there were five different
government technical representatives from MFH and four different contracting officers from
OCPO. HUD also had high turnover in the government technical monitors assigned to the
contract and at one point, had as many as seven from various divisions within MFH. The
turnover in these positions did not ensure consistent and central oversight of the contract and did
not provide a smooth transition among the HUD officials appointed to this contract.

Section 11-2 of HUD Handbook 2210.3, REV-9 states that the government technical
representative serves as HUD’s primary liaison between the contractor and the contracting
officer. Therefore, he or she must also act as a liaison between the contracting officer and the
respective program office. However, there had been a lack of communication and cooperation
among these parties for this contract. We identified several instances of weak relationships
between OCPO and program officials. Decisions related to this contract had not been made with
the input of all involved parties, which led to dissention and disagreement. Communication



1
    The unliquidated obligation balance was $9,975,696 as of August 25, 2014.


                                                     6
among HUD officials involved needs to improve. The OCPO and MFH should each designate a
responsible official who will have accountability over these services going forward.

Conclusion
HUD did not adequately administer its multifamily loan and property management servicing and
accounting contract with Dynaxys, LLC. HUD MFH officials did not adequately track the
amount of funds obligated to and disbursed for this contract. HUD officials obligated more than
$83 million for this contract and disbursed or deobligated only about $73 million throughout the
full term of the contract. MFH officials did not identify and report the excess funds to be
deobligated to the OCPO at the time of contract closeout. The administration of this contract
was hindered by a high rate of turnover in both offices. Consequently, funds were not properly
safeguarded resulting in numerous duplicate payments and nearly $10 million in excess funding
not being deobligated almost a year after the end of the contract period. In addition, inadequate
communication led to decisions related to the contract being made without the input of all
involved parties, which led to disagreements and dissatisfaction. The obligated balance of
almost $10 million can be considered a savings when made available for other contract
obligations or returned to the Treasury.

Recommendations
We recommend that HUD’s Acting Chief Procurement Officer

       1A.     Deobligate the excess $9,975,696 obligated to contract number C-OPC-23316
               with Dynaxys, LLC, for multifamily loan and property management servicing and
               accounting.

We recommend that HUD’s Acting Director, Office of Asset Management and Portfolio
Oversight

       1B.     Establish and implement procedures to ensure that the amounts obligated for each
               of the contract option years are consistent with present funding needs. This
               amount should include a reconciliation of the amounts obligated and disbursed
               during the prior contract year, as well as proper maintenance and tracking of
               payment records.

       1C.     Establish and implement procedures to promote central and consistent oversight
               of contracts, including standardized procedures and documentation to assist in the
               transition among HUD officials appointed to administer contracts.




                                                7
Finding 2: HUD Officials Did Not Always Follow Best Practices in
Their Procurement of HUD’s Multifamily Mortgage Loan and
Property Management Servicing and Accounting Contract

HUD OCPO officials did not always follow best practices in their procurement of HUD’s
multifamily loan and property management servicing and accounting contract with Dynaxys,
LLC. Specifically, HUD OCPO officials did not do enough to ensure that there was adequate
competition when they did not select the most effective procurement method or maximize
vendor awareness and visibility for this contract. We attributed these deficiencies to the lack of
central and consistent accountability and communication under the contract with Dynaxys, LLC.
As a result, HUD OCPO officials did not ensure maximum competition for these contracted
services and that the contract was procured as efficiently as possible when only one proposal was
received.

Historical Lack of Sufficient Competition
This contract had been awarded to Dynaxys, LLC, for more than 20 years, resulting in
approximately $357 million in contract payments. This amount included an average annual
contract amount of nearly $17 million over the past 5 years. During this period approximately
2,700 multifamily assets were serviced annually. However, HUD had received few proposals
from competing vendors.

HUD MFH officials expressed concern over the historical lack of competition for these
contracted services, which may have resulted from the expansive scope of work and Dynaxys,
LLC’s ownership of the rights to the database and software used to perform the work required.
The scope of this contract was originally only for multifamily loan servicing but expanded over
time because of continuous addition of new tasks. The historical lack of sufficient competition
existed because of the absence of central and consistent accountability over this contract.

Ineffective Selection of Procurement Method
HUD’s most recent award of the contract was procured through the Federal supply schedule
program using the U.S. General Services Administration’s (GSA) e-Buy online tool. E-Buy is
an online request for quotation (RFQ) tool to receive information for complex, large quantity, or
big-ticket procurement requirements that streamlines the solicitation process and posts
solicitations, receives quotes, finds sources of supply, and submits responses.

HUD OCPO officials solicited the services for this contract under GSA’s Financial and Business
Solutions (FABS) Schedule 520. They identified potential contractors under the category of
Loan Servicing and Asset Management. GSA defines the services included under this category
as assisting agencies in servicing, monitoring, and maintaining loan assets. However, the scope
of this contract and related servicing were unique. Further, the scope included additional
services, such as accounting and maintenance of HUD’s related UCC filings. Therefore, it was
difficult to classify the scope of the services provided under this contract into one of the
categories on GSA’s FABS Schedule 520. The scope of services included under the contract had
been necessary to meet HUD’s needs because all tasks performed were required for MFH to


                                                8
operate effectively. However, because the services were unique, using the GSA schedules,
through e-Buy, may not have been the most effective method of procurement. HUD officials
should have considered other options that may have resulted in more assurance that the contract
was procured as efficiently as possible.

HUD OCPO officials provided the July 21, 2008, RFQ to six different vendors through GSA’s e-
Buy online tool. However, only one vendor responded to the RFQ, the incumbent contractor,
Dynaxys, LLC. HUD officials told us that this procurement was initially planned as a full and
open competition but was instead submitted through GSA’s FABS Schedule 520 because of time
constraints. Based on the unique scope of this contract and lack of proposals submitted in
response to HUD’s July 21, 2008, RFQ, the GSA schedules, through e-Buy, may not have been
the most effective method of procurement for this solicitation and unintentionally limited
competition.

Vendor Awareness Not Maximized
HUD OCPO officials generally followed regulations for placing orders under a Federal supply
schedule in section 8.4 of the Federal Acquisition Regulation. Contracts awarded under the
Federal supply schedule are considered to be issued using full and open competition, and GSA
has already determined the prices and rates to be fair and reasonable. Although the requirements
were technically followed, HUD OCPO officials could have done more to ensure that this
contract was more competitive as shown by HUD consistently receiving only one proposal in
response to the RFQs for these services. Provisions in the Federal Acquisition Regulation in
effect at the time of this solicitation (48 CFR 8.405-2(c)(3)(i)) state that a solicitation of this size
and complexity should have been provided to additional vendors, especially when only one
proposal was submitted. The regulation states that in addition to meeting the requirements of
8.405-2(c)(2), which states that the RFQ must be provided to at least three schedule contractors
the RFQ (including the statement of work and evaluation criteria) must be provided to additional
schedule contractors that offer services that will meet the needs of the procurement. It adds that
when determining the appropriate number of additional schedule contractors, the ordering
activity may consider, among other factors, the complexity, scope, and estimated value of the
requirement and the market search results.

Although HUD OCPO officials provided their July 21, 2008, RFQ to six different vendors
through GSA’s e-Buy online tool, they received only one proposal in response, which was from
the incumbent contractor, Dynaxys, LLC. As part of our review, we contacted the five vendors
that did not submit responses to HUD’s RFQ to identify their reasons for not responding.
According to vendor officials, the lack of responses was because of possible client conflicts, the
lack of support and capabilities, assumptions that HUD already had a vendor in mind because of
the specific scope, and the ineligibility of one vendor to bid because it did not have the necessary
items on its GSA schedule contract. Therefore, HUD OCPO officials should have reposted the
solicitation or sought additional vendors when only one proposal was received.

HUD officials hosted an Industry Day on May 1, 2013, and issued a corresponding request for
information (RFI) for the contracted services provided by Dynaxys, LLC. In response to the
RFI, 18 vendors other than Dynaxys, LLC, submitted capability statements to HUD. As part of



                                                    9
our review, we contacted these vendors to obtain additional information regarding HUD’s
solicitation of these services. Specifically, we learned that a majority of the vendors that
responded had no knowledge of these contracted services or the related RFQs before the May 1,
2013, RFI and Industry Day. Although almost all of the vendors contacted stated that they had
the skills necessary to complete the work required under this contract and most stated that they
had prior contracts with HUD, more than half were unaware of the prior solicitations, and more
than a third did not have a GSA schedule contract for the category of Loan Servicing and Asset
Management, which this solicitation was posted under in 2008. Vendors without a GSA
schedule contract for this category were unable to bid on the solicitation and HUD OCPO
officials could have reached outside of the GSA schedule contracts for loan servicing. The
majority of vendors also did not consider HUD’s lack of ownership for the software used by
Dynaxys, LLC, as a deterrent to their bidding on a solicitation for this work as HUD officials had
suggested. Therefore, based on the information provided by vendor officials, HUD OCPO
officials have several options for increasing the visibility of HUD’s solicitations and promoting
more adequate competition.

Although HUD OCPO officials generally followed the regulations for purchases under a Federal
supply schedule, they did not follow best practices in ensuring that competition was maximized.
Based on the complexity, scope, and estimated value of the services contracted for, HUD OCPO
officials could have encouraged more contractors to respond to their RFQs. Specifically, they
should have performed more market research to increase competition and considered reposting
the solicitation after receiving only one proposal. We attributed this to the lack of central and
consistent accountability for HUD’s contract with Dynaxys, LLC, as well as inadequate
communication among the HUD officials involved with the services needed. HUD officials did
not make decisions related to this contract with the input of all involved parties, which may have
helped identify additional vendors and concerns regarding inadequate competition. HUD
officials need to improve communication among the HUD officials to be successful going
forward. HUD OCPO officials did not ensure maximum competition for these contracted
services and, thus, were unable to ensure that this contract was procured as efficiently as
possible.

Plans for Contract Going Forward
HUD officials acknowledged that there had been deficiencies in HUD’s contract with Dynaxys,
LLC. In response to these issues, HUD officials conducted a May 1, 2013, Industry Day and
issued a corresponding RFI. Since the start of our review, HUD officials had met regularly to
comprehensively plan the procurement of these services and were exploring options.

HUD officials had taken steps toward improving the contract before the end of our review.
These steps included refining the scope of services required and resolving the inadequate
communication among the HUD offices involved with this contract.

Conclusion
HUD OCPO officials did not always follow best practices in their procurement of HUD’s
multifamily loan and property management servicing and accounting contract with Dynaxys,
LLC. Specifically, HUD OCPO officials did not do enough to ensure that there was adequate



                                                 10
competition when they did not select the most effective procurement method or maximize
vendor awareness for this contract. HUD contracted with Dynaxys, LLC, for these services for
more than 20 years with few competing bids. Based on the unique scope of this contract, using
the GSA schedules, through e-Buy, may not have been the most effective method of procurement
for this solicitation as it unintentionally limited competition. More than half of the vendors
contacted stated that they did not know about these contracted services or the related RFQ before
the May 1, 2013, RFI and corresponding Industry Day. We attributed this situation to the lack of
central and consistent accountability regarding HUD’s contract with Dynaxys, LLC. As a result,
HUD OCPO officials did not ensure adequate competition for these contracted services and,
thus, were unable to ensure that this contract was procured as efficiently as possible when they
only received one proposal.

Recommendations
We recommend that HUD’s Acting Chief Procurement Officer

       2A.    Implement procedures that will ensure that best practices are followed to promote
              overall cost efficiency, reduce processing time, and provide adequate competition
              during the procurement process, including sufficient market research and
              maximum visibility, while taking into account the complexity, scope, and
              estimated value of the contract.

       2B.    Establish and implement procedures to promote central and consistent
              accountability and communication in the acquisition of multifamily mortgage
              loan and property management servicing and accounting services to ensure that
              all needs and concerns are addressed and decisions are made with the input of all
              involved parties.




                                                11
Scope and Methodology
We performed the audit fieldwork from February through August 2014 at the HUD Office of
Inspector General (OIG), Office of Audit, in Buffalo, NY, and HUD headquarters in Washington,
DC. The audit scope covered the period September 30, 2008, through September 29, 2013, and was
extended as necessary. We relied in part on computer-processed data primarily for obtaining
background information on HUD’s contract expenditures. We performed a minimal level of testing
and found the data to be adequate for our purposes. To accomplish our objectives, we

      Reviewed applicable sections of the Federal Acquisition Regulation, HUD Acquisition
       Regulation, HUD Chief Procurement Officer handbook, and additional guidance as
       necessary.

      Interviewed HUD officials to obtain an understanding of and identify the concerns related to
       HUD’s contract for multifamily loan and property management servicing and accounting.

      Interviewed contractor officials to understand the services provided under the contract.

      Polled 23 industry vendors that represented potential offerors for the services contracted
       for with Dynaxys, LLC, regarding the adequacy of HUD’s solicitation process. This
       number included 18 vendors that responded to HUD’s May 1, 2013, RFI and 5 vendors
       that were notified of HUD’s July 21, 2008, RFQ. We received responses from 19 of the
       23 vendors contacted.

      Reviewed the official contract files maintained by OCPO.

      Reviewed the contract payment requests maintained by Dynaxys, LLC. These payment
       requests represented 431 invoices totaling almost $73 million.

      Reviewed the contract payment records maintained by various HUD officials. The
       records reviewed were maintained by the government technical representative appointed
       to the contract; the Office of Housing’s Office of Financial Analysis and Reporting, Cash
       Management Branch; and the Office of the Chief Financial Officer. The quantity and
       total amounts of these records varied among the offices.

   We conducted the audit in accordance with generally accepted government auditing
   standards. Those standards require that we plan and perform the audit to obtain sufficient,
   appropriate evidence to provide a reasonable basis for our findings and conclusions based on
   our audit objective(s). We believe that the evidence obtained provides a reasonable basis for
   our findings and conclusions based on our audit objectives.




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Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
   Effectiveness and efficiency of operations,
   Reliability of financial reporting, and
   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objectives:

   Program operations – Policies and procedures that management has implemented to reasonably
    ensure that a program meets its objectives.
   Reliability of data – Policies and procedures that management has implemented to reasonably
    ensure that valid and reliable data are obtained, maintained, and fairly disclosed in reports.
   Laws and regulations – Policies and procedures that management has implemented to
    reasonably ensure that resource use is consistent with laws and regulations.
   Safeguarding of resources – Policies and procedures that management has implemented to
    reasonably ensure that resources are safeguarded against waste, loss, and misuse.

We assessed the relevant controls identified above.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.

Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

   HUD officials did not have adequate controls over the effectiveness and efficiency of program
    operations when they did not establish adequate administrative controls to ensure that maximum
    competition was promoted, sufficient documentation was maintained, and effective
    communication existed among all involved parties (see findings 1 and 2).



                                                  13
   HUD officials did not have adequate controls to ensure that resources were safeguarded when
    they did not sufficiently track and monitor contract payments and deobligate funds when the
    contract was closed (see finding 1).




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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/
                                  1A               $9,975,696


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. In this
     case, if HUD implements our recommendation to deobligate the excess funds no longer
     needed for the contract that ended September 29, 2013, more than $9.9 million in savings
     can be put to better use.




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Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation

              OCPO Comments




Comment 1




Comment 2




                               16
Ref to OIG   Auditee Comments
Evaluation




Comment 3




Comment 4




                            17
Ref to OIG   Auditee Comments
Evaluation




Comment 5




                            18
Ref to OIG   Auditee Comments
Evaluation
             MFH Comments




Comment 6

Comment 7

Comment 8

Comment 7




                            19
                  OIG Evaluation of Auditee Comments

Comment 1   HUD OCPO provided documentation to support that it had completely
            deobligated the unliquidated obligation balance of $9,975,696 as of October 28,
            2014. We reviewed this documentation and agree that the deobligation of these
            funds and closeout of this contract have been completed. The attached
            documentation was not included in the audit report due to its voluminous nature.
            This recommendation can be closed concurrent with the issuance of the final
            report.
Comment 2   HUD OCPO stated that it had identified the deficiencies with the prior
            procurements for these services and immediately began working towards
            improving their processes. Throughout our review, we did find that OCPO had
            been proactive and taken steps towards correcting the deficiencies related to this
            contract. However, we also found that MFH officials had identified that there
            were potential issues with this contract and expressed their concerns to OCPO and
            OIG. Although OCPO had already begun making improvements to their
            processes, this progress needs to continue going forward and should be evaluated
            as part of the audit resolution process.
Comment 3   HUD OCPO stated that it had recently issued multiple Acquisition Instructions to
            improve its processes. These were provided as attachments to OCPO’s
            comments, but were not included in the audit report due to their voluminous
            nature. We reviewed the attached documentation and agree that OCPO had been
            proactive and taken steps towards correcting the deficiencies related to this
            contract. Although OCPO had already begun making improvements to their
            processes, this progress needs to continue going forward and should be evaluated
            as part of the audit resolution process.
Comment 4   HUD OCPO stated that it had established several programs to address its high rate
            of turnover. OCPO has taken appropriate steps to limit the amount of turnover
            within its staff.
Comment 5   The attachments referenced in OCPO’s comments were received and reviewed.
            These documents support that OCPO was responsive and had begun taking
            corrective actions to address the recommendations. The attachments were not
            included in the report due to their voluminous nature.
Comment 6   HUD Office of Multifamily Housing Program officials requested that their office
            be referred to as MFH throughout the audit report for consistency. We have made
            the necessary revisions to ensure consistency in the report.
Comment 7   HUD MFH requested that we add a recommendation to finding 1 that will require
            a lead program manager from MFH to oversee the acquisition of these services
            for Housing and be responsible for making the final decision on acquisition



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            methods with assistance from stakeholders in other parts of Housing. However,
            we decided that the specific procedures to promote central and consistent
            oversight of contracts to be implemented by MFH should be accomplished as part
            of the audit resolution process under recommendation 1C and therefore we did not
            add an additional recommendation to the audit report.
Comment 8   HUD MFH agreed with the two revisions to the audit report that were discussed
            during the exit conference held for this audit. Recommendation 2B was revised
            by removing “procurement” and adding “acquisition” and recommendation 2A
            was revised by adding “reduce processing time.”




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