oversight

HUD Lacked Adequate Oversight To Ensure That Public Housing Agencies Complied With Federal Lobbying Disclosure Requirements and Restrictions

Published by the Department of Housing and Urban Development, Office of Inspector General on 2015-01-30.

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

   Office of Public and Indian Housing,
             Washington, DC
        HUD’s Oversight of Public Housing Agencies’
        Compliance With Federal Lobbying Disclosure
               Requirements and Restrictions




Office of Audit, Region 3      Audit Report Number: 2015-PH-0001
Philadelphia, PA                                 January 30, 2015
To:            Milan M. Ozdinec, Deputy Assistant Secretary, Office of Public Housing and
               Voucher Programs, PE
From:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA
Subject:       HUD Lacked Adequate Oversight To Ensure That Public Housing Agencies
               Complied With Federal Lobbying Disclosure Requirements and Restrictions




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 oversight of public housing agencies’
compliance with Federal lobbying disclosure requirements and restrictions.
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
215-430-6730.
                        Audit Report Number: 2015-PH-0001
                        Date: January 30, 2015

                        HUD Lacked Adequate Oversight To Ensure That Public Housing Agencies
                        Complied With Federal Lobbying Disclosure Requirements and Restrictions




Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of
public housing agencies’ lobbying activities based on information we obtained while resolving
recommendations from an audit of the Philadelphia Housing Authority1 which showed that the
Authority engaged in lobbying activities it failed to disclose. Our audit objective was to
determine whether HUD oversight was adequate to ensure that public housing agencies complied
with Federal lobbying disclosure requirements and restrictions.

What We Found
The audit showed that only 12 of about 3,300 agencies were reported to have engaged in
lobbying activities during the audit period. However, HUD policies generally did not ensure that
the agencies that lobbied complied with Federal lobbying disclosure requirements and
restrictions. Of the 12 agencies reported to have engaged in lobbying activities, 9 spent $2.5
million on lobbying activities that they failed to disclose as required. Four of the nine agencies
were participants in HUD’s Moving to Work (MTW) program and spent $1.5 million on
undisclosed lobbying activities. Therefore, the risk of violations appeared to be greater at
agencies participating in HUD’s MTW program. Three of the MTW agencies incorrectly
certified that they had not used Federal funds for lobbying. Also, HUD could not provide all of
the required lobbying certifications and disclosures for the 12 agencies on which lobbyists had
reported during the review period. Because HUD failed to implement adequate policies to
monitor agencies’ compliance with lobbying requirements, (1) three agencies improperly spent
about $129,000 in Federal funds on lobbying activities, (2) HUD lacked assurance that other
agencies did not spend Federal funds on lobbying activities or violate other lobbying-related
requirements, and (3) HUD risked creating an appearance of a lack of transparency.

What We Recommend
We recommend that HUD require corrective action and pursue administrative sanctions as
appropriate to address agencies’ violations of Federal lobbying disclosure requirements and
restrictions and implement additional control policies or procedures to ensure that agencies
comply with lobbying disclosure requirements and restrictions.




1
    HUD Office of Inspector General (OIG) audit report number 2011-PH-1007, dated March 10, 2011
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: HUD Policies Did Not Ensure That Housing Agencies Submitted
         Accurate Certifications and Disclosures Regarding Lobbying Activities ................... 4

         Finding 2: HUD Did Not Ensure That Agencies Consistently Submitted Required
         Lobbying Certifications and Disclosures ........................................................................ 9

Scope and Methodology .........................................................................................11

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

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

         B. Schedule of Payments Reported by Lobbyists ...................................................... 20

         C. Schedule of Required Certifications Based on Payments Reported by Lobbyists
            ..................................................................................................................................... 21

         D. Schedule of Required Disclosures Based on Payments Reported by Lobbyists.. 22




                                                                        2
Background and Objective
The U.S. Department of Housing and Urban Development’s (HUD) Office of Public and Indian
Housing administers a range of housing programs to ensure safe, decent, and affordable housing;
create opportunities for residents’ self-sufficiency and economic independence; and ensure the
fiscal integrity of program participants. The Office generally administers housing programs
through public housing agencies.

Regulations at 24 CFR (Code of Federal Regulations) Part 87 state that Federal funds may not be
used for lobbying in connection with any Federal contract, grant, loan, or cooperative agreement
or any extension, continuation, renewal, amendment, or modification of them. The regulations
also require recipients of more than $100,000 in Federal funds or more than $150,000 in Federal
loans to file a certification 2 that they had not used and would not use Federal funds for lobbying
and to file a disclosure 3 if they had used or would use non-Federal funds for lobbying.

The Lobbying Disclosure Act of 1995 required lobbyists to register with both Houses of
Congress and provide quarterly disclosures 4 of lobbying activities conducted for each client. In
addition, lobbyists and lobbying firms were required to provide an estimate of the total income
received for each client, including payments received from other persons or parties for lobbying
activities on behalf of the client in excess of $5,000 quarterly. 5 Lobbyists were also required to
indicate if they received income that fell below the threshold. The U.S. Senate Office of Public
Records received, processed, and maintained this information and made it available to the public
in its Lobbying Disclosure Act database. In instances in which lobbyists indicated that they
received income below the threshold, the database reflected $0 in income. The Lobbying
Disclosure Act defined “lobbying activities” as lobbying contacts and efforts in support of such
contacts, including preparation and planning activities; research and other background work that
was intended, at the time it was performed, for use in contacts; and coordination with the
lobbying activities of others. Under the Act, any oral, written, or electronic communication with
covered officials regarding the formulation, modification, or adoption of policy or legislation
constituted a lobbying contact. Communications relating to the administration or execution of a
Federal program or policy were also included. Covered officials included, among others,
members of Congress and executive officials, such as agency heads and deputies and assistant
and deputy assistant secretaries.

Our audit objective was to determine whether HUD oversight was adequate to ensure that public
housing agencies complied with Federal lobbying disclosure requirements and restrictions.




2
  Form HUD-50071
3
  Standard Form LLL
4
  Semiannual disclosures were required before the Act was amended in September 2007.
5
  In excess of $10,000 semiannually before the Act was amended in 2007


                                                       3
Results of Audit
Finding 1: HUD Policies Did Not Ensure That Housing Agencies
Submitted Accurate Certifications and Disclosures Regarding
Lobbying Activities
Registered lobbyists reported receiving $3.6 million related to lobbying activities conducted for
12 housing agencies; however, 9 of the agencies, that reportedly spent $2.5 million on lobbying,
failed to disclose the lobbying activities as required. Four of the nine agencies were participants
in HUD’s MTW program and spent $1.5 million on undisclosed lobbying activities. Therefore,
the risk of violations appeared to be greater at agencies participating in HUD’s MTW program.
Three of the MTW agencies incorrectly certified that they had not used Federal funds for
lobbying. These problems generally occurred because HUD relied solely on agencies’ self-
certifications regarding lobbying activities. As a result, three MTW agencies improperly spent
approximately $129,000 in Federal funds on lobbying, and HUD lacked reasonable assurance
that other agencies did not spend Federal funds on lobbying activities. Also, the lack of accurate
lobbying disclosures could create an appearance of a lack of transparency.

Agencies Failed To Disclose Lobbying Activities Reported by Lobbyists
According to the U.S. Senate Lobbying Disclosure Act database, registered lobbyists reported
receiving $3.6 million from 12 housing agencies between 2002 and 2012. Appendix B shows a
breakdown of all 12 housing agencies and the related lobbying expenses reported by registered
lobbyists. Based on a review of lobbying disclosures for the same period provided by HUD for
the 12 agencies, 9 agencies that reportedly spent $2.5 million on lobbying failed to disclose the
lobbying activities as required. Four of the nine agencies were participants in HUD’s MTW 6
program and spent $1.5 million on undisclosed lobbying activities. MTW agencies represented
about 1 percent of all public housing agencies; however, 44 percent of agencies that violated
lobbying disclosure requirements were MTW agencies. Therefore, it appeared that the risk of
violations was greater at MTW agencies.

Of the nine agencies that failed to disclose lobbying activities, we selected and performed a more
detailed review of three MTW agencies to determine whether they complied with lobbying
disclosure requirements and restrictions (discussed below). HUD needs to determine whether




6
  In 1996, Congress authorized MTW as a HUD demonstration program. Congress exempted participating housing
agencies from much of the U.S. Housing Act of 1937, as amended, and associated regulations as outlined in their
MTW agreements. Participating housing agencies have considerable flexibility in determining how to use Federal
funds. Agencies must submit an annual plan at the beginning of their fiscal years and an annual report at the end of
the fiscal year.



                                                          4
the other six agencies 7 identified by this audit violated lobbying requirements and restrictions
and pursue corrective actions and administrative sanctions as appropriate for confirmed
violations. Agencies should be required to repay Federal funds improperly spent on lobbying
activities and implement management controls to prevent recurring violations.

Three MTW Agencies Violated Certification and Disclosure Requirements
The U.S. Senate Lobbying Disclosure Act database indicated that four MTW agencies spent $1.5
million on lobbying activities that they failed to disclose. Regulations at 24 CFR Part 87 required
recipients of more than $100,000 in Federal funds or more than $150,000 in Federal loans to file
a certification that they had not used and would not use Federal funds for lobbying and to file a
disclosure if they had used or would use non-Federal funds for lobbying. For the four MTW
agencies, HUD either did not have their lobbying certifications and disclosures or the forms were
inaccurate. We performed a more detailed review of three of the four MTW agencies to
determine whether they complied with lobbying disclosure requirements and restrictions. The
agencies violated lobbying-related requirements and improperly used approximately $129,000 in
Federal funds for lobbying activities. Discussions with agency officials indicated that agencies
were not always fully aware of what constituted lobbying activities. We issued separate reports
to the agencies to communicate our results. The following paragraphs provide details.

    •   The Philadelphia Housing Authority, Philadelphia, PA, failed to disclose lobbying
        activities for which it spent as much as $660,000 during the period 2006 to 2010. It also
        improperly spent $48,500 in Federal funds on lobbying activities conducted through law
        firms. The Authority’s former executive director falsely certified that the Authority had
        not spent or would not spend Federal funds on lobbying and falsely certified that the
        Authority had no lobbying activities to disclose. The Authority repaid the funds it
        improperly spent on lobbying activities. We recommended that HUD pursue civil action
        against the Authority’s former executive director, ensure that responsible Authority
        officials are formally trained on Federal lobbying disclosure requirements and
        restrictions, and include coverage of the Authority’s compliance with the requirements
        and restrictions in future monitoring reviews (Office of Inspector General (OIG)
        memorandum report number 2013-PH-1803, dated April 26, 2013).

    •   The Housing Authority of the City of Pittsburgh, PA, failed to disclose lobbying
        activities on which it improperly spent as much as $80,000 in Federal funds in 2004 and
        2005. The Authority’s former executive director falsely certified that the Authority had
        not spent or would not spend Federal funds on lobbying and falsely certified that the
        Authority had no lobbying activities to disclose. We recommended that HUD require the
        Authority to repay Federal funds it spent on lobbying activities, ensure that responsible
        Authority officials are formally trained on Federal lobbying disclosure requirements and




7
 Housing Authority of the County of Santa Clara, Allegheny County Housing Authority, Wisconsin Housing and
Economic Development Authority, Housing Authority of the City of Alameda, Tampa Housing Authority, and St.
Cloud Housing and Redevelopment Authority


                                                      5
           restrictions, and include coverage of the Authority’s compliance with the requirements
           and restrictions in future monitoring reviews (OIG memorandum report number 2014-
           PH-1803, dated May 2, 2014).

      •    Home Forward (previously known as the Housing Authority of Portland), Portland, OR,
           failed to disclose lobbying activities conducted on its behalf between 2006 and 2010. It
           also improperly allocated $643 in lobbying-related expenses to Federal sources of funds
           in 2007 and 2008. Also, in at least one instance, it incorrectly certified that it had not
           used Federal funds for lobbying activities and in another instance, could not demonstrate
           that it had certified, as required, that it had not used and would not use Federal funds for
           lobbying. During the audit, Home Forward reclassified to non-Federal funds the $643 it
           had improperly allocated to Federal funds. We recommended that HUD ensure that
           responsible Authority officials receive comprehensive training on Federal lobbying
           disclosure requirements and restrictions, and include coverage of the Authority’s
           compliance with the requirements and restrictions in future monitoring reviews (OIG
           memorandum report number 2014-PH-1806, dated September 5, 2014).

HUD Relied Solely on Self-Certifications To Monitor Housing Agencies
HUD accepted and relied on agencies’ certifications and disclosures without performing
additional verification. According to program officials, HUD monitored agencies’ compliance
with lobbying certification and disclosure requirements solely through self-certification due to
limited resources. Therefore, HUD did not monitor any of the agencies reviewed for compliance
with regard to lobbying requirements. Program officials stated that field office staff would have
forwarded any disclosures that indicated lobbying activities to HUD’s Office of Ethics and then
conducted monitoring to ensure that related lobbying expenses had not been paid with Federal
funds.

HUD’s policy8 emphasized that the prohibition against the use of Federal funds for lobbying
applied even for awards of less than $100,000 and that field offices should be alert to possible
violations. Based on its policy of monitoring via self-certification, it is highly unlikely that HUD
would become aware of violations in these instances because agencies were not required to
submit certifications or disclosures for awards not exceeding $100,000.

HUD informed us that its field offices based their annual monitoring plans on risk and that no
risk had been identified in relation to lobbying since agencies we reviewed did not disclose
lobbying activities. Program officials also stated that HUD considered the issue of lobbying to
be low risk because, other than relatively large housing authorities, most agencies did not have
the funds or inclination to engage in lobbying. HUD stated that as a normal component of
routine monitoring of agencies’ budgets and expenditures, field offices questioned and addressed
any data indicating that Federal funds might have been used for lobbying. However, HUD also
stated that financial information and other relevant agency submissions did not provide sufficient



8
    Public and Indian Housing Handbook 7570.1, section 2-6C


                                                        6
information to identify potential instances of Federal funds being spent on lobbying. In addition,
information we obtained while reviewing the three MTW agencies indicated that some agencies
might not be fully aware of what constituted lobbying activities. These challenges indicated that
HUD needed to implement additional controls to increase its likelihood of detecting violations.

Conclusion
HUD lacked adequate controls to ensure that public housing agencies submitted accurate
required certifications and disclosures regarding their lobbying activities. Potentially 75 percent
of agencies for which lobbyists reported they had received payments for lobbying activities
failed to disclose the lobbying activities as required. The risk of violations appeared to be
greater at MTW agencies, which represented roughly 1 percent of public housing agencies but
made up 44 percent of the noncompliant agencies identified. Also, three MTW agencies we
reviewed incorrectly certified that they had not used Federal funds for lobbying. These problems
generally occurred because HUD relied solely on agencies’ self-certifications to monitor their
compliance with lobbying disclosure requirements and restrictions. As a result, three MTW
agencies improperly spent approximately $129,000 in Federal funds on lobbying activities. 9 In
addition, HUD lacked reasonable assurance that agencies did not spend Federal funds on
lobbying activities, and the lack of accurate lobbying disclosures could create an appearance of a
lack of transparency. HUD needs to implement additional control policies and procedures to
ensure that agencies comply with lobbying disclosure requirements and restrictions. Also, since
the risk of violations appeared to be greater at MTW agencies, as an added control, HUD should
require them to include lobbying certifications in their annual plans and lobbying disclosures in
their annual reports.

Recommendations
We recommend that the Deputy Assistant Secretary for Public Housing and Voucher Programs

        1A.      Review records for the other six agencies identified by this audit to confirm
                 whether they violated Federal lobbying disclosure requirements and restrictions
                 and require them to take appropriate corrective actions.

        1B.      Pursue administrative sanctions as appropriate against the responsible agency
                 officials for any of the six agencies that are confirmed to have violated Federal
                 lobbying disclosure requirements and restrictions.

        1C.      Implement additional control policies or procedures to ensure that housing
                 agencies submit accurate lobbying certifications and disclosures. At a minimum,
                 annually run a query of the publicly available Congressional databases and
                 compare the information to its records.




9
 We made recommendations to address the violations identified during our reviews of the three MTW agencies in
separate reports. Therefore, we made no recommendations to address those violations in this report.


                                                       7
1D.   Require MTW agencies to incorporate lobbying certifications into their annual
      plans and lobbying disclosures into their annual reports.

1E.   Ensure that the six public housing agencies are fully aware of Federal lobbying
      disclosure requirements and restrictions.




                                       8
Finding 2: HUD Did Not Ensure That Agencies Consistently
Submitted Required Lobbying Certifications and Disclosures
HUD policies did not always ensure that agencies consistently submitted lobbying certifications
and disclosures as required. HUD could not provide 20 of 65 certifications (31 percent) and 35
of 65 disclosure forms (54 percent) for 12 agencies for which lobbyists had reported receiving
payments for lobbying activities during the review period. HUD also could not provide 20 of 43
required certifications (47 percent) based on Federal funding awards for 5 agencies reviewed. Of
the five agencies reviewed, four were MTW program participants and were responsible for 95
percent of the missing certifications. These problems generally occurred because HUD relied
solely on self-certifications to monitor agencies’ compliance and program managers assumed
that agencies had no lobbying activities if they did not submit disclosures with required lobbying
certifications. Also, responsible program managers were not always aware of lobbying
certification requirements and did not always follow HUD policy regarding certifications. As a
result, HUD lacked assurance that agencies did not spend Federal funds on lobbying or violate
lobbying disclosure requirements.

Agencies Failed To Consistently Submit Required Lobbying Certifications and Disclosures
HUD policies did not ensure that agencies consistently submitted required lobbying certifications
and disclosures. Program managers could not provide 20 of 65 certifications (31 percent) (see
appendix C) and 35 of 65 disclosure forms (54 percent) (see appendix D) for 12 agencies for
which lobbyists had reported receiving payments for lobbying activities during the review
period. MTW agencies were responsible for 10 percent of the missing certifications and 31
percent of the missing disclosures.

Also, we reviewed five agencies within our region for compliance with lobbying certification
requirements based on funding awards and determined that they did not always comply. For
each of the agencies, we obtained and reviewed related HUD funding histories for 2009 through
2012 to determine the funding awards that exceeded the $100,000 threshold, thus requiring a
certification in accordance with the Federal regulations. 10 Program managers could not provide
20 of 43 required certifications (47 percent) for the 5 agencies. Of the five agencies, four were
participants in HUD’s MTW program and were missing 19 of 38 certifications. The missing
certifications for the MTW agencies represented 95 percent of the total missing certifications.
HUD policy 11 stated that field offices were required to review and ensure that certifications were
complete before awarding funds and maintain copies of certifications; therefore, HUD should
have ensured that agencies submitted the required certifications.

HUD Needs To Improve Its Oversight
As discussed in finding 1, HUD accepted and relied on agencies’ self-certifications and
disclosures regarding lobbying without performing additional verification. Agencies could avoid
submitting the required lobbying disclosures without detection because program managers



10
     24 CFR Part 87
11
     Public and Indian Housing Handbook 7570.1, section 2-6A


                                                        9
assumed that agencies had no lobbying activities if they did not submit disclosures with required
lobbying certifications. Also, agencies may not have fully understood what constituted lobbying
activities. In addition, responsible program managers were not always aware of lobbying
certification requirements and did not always follow HUD policy regarding certifications.

HUD needs to improve its oversight to increase agency compliance with lobbying certification
and disclosure requirements. HUD should emphasize the need for agencies to comply with the
requirements. HUD should also train responsible staff to ensure that they are fully aware of
certification and disclosure requirements, and properly track and retain agencies’ certifications
and disclosures.

Conclusion
HUD policies did not ensure that agencies consistently submitted required lobbying certifications
and disclosures as required. HUD could not provide all of the required certifications and
disclosures for 12 agencies for which lobbyists had reported receiving payments for lobbying
activities during the review period. HUD also could not provide all of the certifications required
based on funding awards for five agencies reviewed. The problems generally occurred because
HUD relied solely on self-certifications to monitor agencies’ compliance and program managers
assumed that agencies had no lobbying activities if they did not submit disclosures with required
lobbying certifications. Also, responsible program managers were not always aware of lobbying
certification requirements and did not always follow HUD policy regarding certifications. As a
result, HUD lacked assurance that agencies did not spend Federal funds on lobbying or violate
lobbying disclosure requirements.

Recommendations
We recommend that the Deputy Assistant Secretary for Public Housing and Voucher Programs

       2A.     Work with the agencies identified by the audit to obtain all required certifications
               and disclosures for the last 3 years.

       2B.     Issue guidance on lobbying certification and disclosure requirements to all public
               housing agencies to emphasize the need for compliance with the requirements.

       2C.     Implement staff training with updates as needed to ensure that responsible staff is
               fully aware of lobbying certification and disclosure requirements, and properly
               track and retain agencies’ certifications and disclosures.




                                                 10
Scope and Methodology
We conducted the audit from October 2012 through September 2014 at our office located in
Philadelphia, PA. The audit covered the period January 2002 through December 2012.

To accomplish our objective, we reviewed

    •   Relevant background information including prior HUD OIG audit reports;

    •   Applicable laws and HUD rules and regulations, handbooks, and guidance;

    •   MTW agreements, annual plans, annual reports, public housing agencies’ annual
        contributions contracts, and audited financial statements;

    •   A forensic audit report of the Philadelphia Housing Authority prepared by KPMG, LLP,
        dated September 26, 2012;

    •   The U.S. Senate Office of Public Records Lobbying Disclosure Act database; and

    •   Lobbying certifications and disclosures made between 2002 and 2012 for 12 agencies for
        which lobbyists reported receiving payments during that period.

We communicated with HUD program officials and HUD’s Philadelphia Regional Counsel.

We queried the U.S. Senate’s Lobbying Disclosure Act database for housing authorities, using
the period 2002 to 2012, and identified 12 agencies affiliated with HUD that were reported as
clients of various lobbyists. We requested lobbying certification and disclosure forms related to
program funds the agencies received from 2002 through 2012. We reviewed the certification
and disclosure forms to determine whether each agency provided at least one certification and
one disclosure form for each year that lobbyists had reported receiving payments from or on
behalf of the agency for lobbying activities. We also reviewed the disclosure forms to determine
whether the agencies disclosed lobbying activities as required. Five of the 12 agencies reported
to have engaged in lobbying activities were MTW agencies. We selected three of the five
agencies for a more detailed review. We considered this adequate to support our conclusions.

We selected for review five of the most prominent public housing agencies within our region.
The agencies included the Housing Authority of Baltimore City, District of Columbia Housing
Authority, Harrisburg Housing Authority, Philadelphia Housing Authority, and Housing
Authority of the City of Pittsburgh. For each of the agencies, we obtained and reviewed HUD
funding award histories for the period 2009 through 2012 and requested for review the related
certifications that agencies should have submitted based on funding awards that exceeded the
$100,000 threshold provided by 24 CFR Part 87.



                                                11
We relied in part on computer-processed data in HUD’s Public and Indian Housing Information
Center system and the U.S. Senate’s Lobbying Disclosure Act database. We did not perform a
detailed assessment of the reliability of data; however, we performed a minimal level of testing
and found the data to be generally adequate for our purposes. The testing entailed matching
funding amounts from HUD’s information system to supporting documents. In certain instances,
the funding amounts from the system did not reconcile with related file documentation. In those
instances, we relied on the information in file documents. In addition, the payments for lobbying
reported in the Senate’s database were comparable to the corresponding amounts we identified in
the accounting records for the three housing agencies reviewed.

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




                                                12
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

•   Effectiveness and efficiency of operations,
•   Reliability of financial reporting, and
•   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

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

•   Effectiveness of operations – Policies and procedures that management has implemented to
    reasonably ensure that a program meets its objectives.

•   Compliance with laws and regulations – Policies and procedures that management has
    implemented to reasonably ensure that resource use is consistent with laws and regulations.

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

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

•   HUD lacked adequate controls to ensure that housing agencies submitted accurate required
    lobbying certifications and disclosures and consistently submitted required lobbying
    certifications and disclosures.




                                                  13
Appendixes

Appendix A
              Auditee Comments and OIG’s Evaluation




 Ref to OIG    Auditee Comments
 Evaluation




 Comment 1




                                14
                Auditee Comments and OIG’s Evaluation




Ref to OIG
Evaluation   Auditee Comments




Comment 2


Comment 3



Comment 4


Comment 5




                                  15
             Auditee Comments and OIG’s Evaluation


              Auditee Comments
Ref to OIG
Evaluation




Comment 6

Comment 7

Comments 6
and 7


Comment 8



Comment 9


Comment 10



Comment 11




                               16
                             OIG Evaluation of Auditee Comments


Comment 1   HUD categorized the audit recommendations into three groups and stated that the
            first group, including recommendations 1A, 1B, 1C, 1E, and 2A, recommended
            that it investigate and take appropriate actions for the exceptions noted in the
            audit. However, recommendation 1C addresses identification and prevention of
            future deficiencies. Nevertheless, we are pleased that HUD took no issue with all
            five recommendations, as well as recommendations 2B and 2C which it
            categorized into a second group which it stated focused on HUD staff and the
            reiteration of current policies.

Comment 2   HUD stated that the MTW annual plan includes a “Certifications of Compliance”
            which restates many requirements for MTW agencies and covers the submission
            of lobbying disclosures. However, the certification simply shows that an agency
            has certified that it will comply with the lobbying requirements provided by
            regulations at 24 CFR Part 87, and does not include any evidence that the agency
            has complied with the requirements.

Comment 3   HUD stated that it would not be supportive of asking MTW agencies to disclose
            their actual lobbying activities in the annual MTW report because such
            information is not required of non-MTW agencies. We do not expect the MTW
            agencies to disclose their actual lobbying activities. The intent of the
            recommendation is for the agencies to attach the standard certifications and
            disclosures required by regulations at 24 CFR Part 87 to their annual plans and
            reports respectively. This simple action would provide HUD another way to
            ensure that the agencies comply with the lobbying certification and disclosure
            requirements. We updated the wording in the audit recommendation to clarify the
            intent.

Comment 4   HUD stated that the MTW agencies should be treated the same way as the non-
            MTW agencies. While only 12 agencies were reported to have engaged in
            lobbying activities, as explained in the audit report, the majority of those agencies
            failed to fully comply with lobbying requirements; and about half of the
            noncompliant agencies were MTW agencies which only represented
            approximately 1 percent of all public housing agencies. Therefore, the issue is
            that agencies reported to have engaged in lobbying activities generally failed to
            comply with lobbying requirements, and the risk of noncompliance appeared to be
            greater for MTW agencies. We disagree that the incorporation of lobbying
            certifications and disclosures into MTW agencies’ annual plans and reports
            respectively would impose a higher level of burden on the agencies and HUD.
            Since MTW agencies, like any other public housing agency, are required to
            submit lobbying forms to the offices from which they receive funds as a condition
            of receipt of those funds, they could simply attach their certification and
            disclosure forms to their annual plans and reports respectively.



                                              17
Comment 5   HUD stated that the expenditure of agency and HUD staff time on documenting
            exception cases provides no tangible benefit. The audit disclosed that three MTW
            agencies improperly spent Federal funds on lobbying. If other public housing
            agencies have spent Federal funds on lobbying, those funds must be repaid. Also,
            to help prevent future instances of noncompliance, HUD needs to ensure that
            agencies are fully aware of lobbying requirements and what actions constitute
            lobbying activities. We do not believe an unreasonable expenditure of effort
            would be required to investigate and implement corrective action related to the
            audit exceptions.

Comment 6   HUD stated that we recommended a significant expenditure of effort by both the
            agencies and HUD staff. We disagree that the audit recommendations constitute a
            significant expenditure of effort by both the agencies and HUD. We simply asked
            HUD to investigate and take appropriate action related to the audit exceptions,
            ensure that its staff and public housing agencies are aware of lobbying
            requirements, and at a minimum, implement a simple annual procedure to help
            identify and prevent future deficiencies. In the case of MTW agencies, we simply
            asked that they attach certifications and disclosures that they are required to
            complete pursuant to regulations at 24 CFR Part 87 to their annual plans and
            reports respectively. In its response to the audit report, HUD essentially stated
            that it had no issues with seven of the eight audit recommendations.

Comment 7   HUD stated that it appears that agencies generally are complying with the policy
            not to expend Federal funds for lobbying and current policies and procedures are
            reasonably being followed. However, as explained in the audit report and in
            comment 4 above, the issue is that the majority (75 percent) of agencies reported
            to have engaged in lobbying activities generally failed to comply with lobbying
            requirements. We did not review compliance with lobbying requirements for all
            3,300 public housing agencies. We only focused on the 12 agencies for which
            lobbyists reported to Congress that they had received payments for lobbying
            activities. We believe it is possible that some lobbyists failed to disclose the
            required information on lobbying to Congress. It is also possible that some
            agencies handled lobbying activities in-house or through attorneys or other
            professional service providers and failed to submit the appropriate disclosures.
            For example, the Philadelphia Housing Authority improperly spent Federal funds
            on lobbying activities conducted through law firms and also failed to submit
            required lobbying disclosures to HUD. Therefore, the audit results do not
            constitute or support a basis for HUD’s statements that agencies generally are
            complying with the policy not to expend Federal funds on lobbying and current
            policies and procedures are reasonably being followed.

Comment 8   HUD stated that an annual query of the Congressional databases would cause an
            additional strain on already limited staff resources. As we explained during and
            after the exit conference, implementation of recommendation 1C would not
            involve separate queries of 3,300 public housing agencies. The annual query


                                             18
              would entail searching the online congressional database using the appropriate
              keyword parameters to identify public housing agencies that were reported to
              have paid lobbyists for lobbying activities.

Comment 9     HUD stated that due to limited resources it will continue to rely on agency self-
              certifications and that the suggestion that HUD staff take proactive steps to detect
              violations related to lobbying activities would present an enormous challenge to
              HUD staff. However, HUD’s objection relates to an audit recommendation that is
              not in the final audit report. Consistent with our audit process, we discussed the
              draft audit report with HUD during the exit conference and considered HUD’s
              feedback and proposals for feasible solutions to address the audit deficiencies.
              Based on our discussion with HUD we updated the audit recommendations and
              provided an updated report to HUD for comment. However, in its response, HUD
              addressed a draft recommendation that is not in the final audit report. After we
              received HUD’s response on December 17, 2014, and noted that it was addressing
              recommendations from the draft report rather than the updated draft report, we
              contacted the HUD audit liaison officer and informed him of the situation. We
              offered HUD the opportunity to provide an updated response but the audit liaison
              officer declined the offer and stated that we should accept the response as-is.

Comment 10 HUD stated that implementation of an additional process to obtain, track and
           retain lobbying certifications and disclosures is not a necessary remedy and that
           updating its guidance and training staff would be a more viable solution.
           However, HUD’s objection relates to an audit recommendation that is not in the
           final audit report. As explained in comment 9 above, we followed our audit
           process and also offered HUD an opportunity to provide an updated response.
           However, HUD declined the offer. Recommendations 2B and 2C are consistent
           with HUD’s proposed solutions and in its response to the audit report HUD stated
           that it had no issues with the recommendations.

Comment 11 HUD stated that it believes that the audit results are not significant enough to
           warrant any policy changes. However, in its response HUD stated that it had no
           issue with seven of the eight audit recommendations. We are pleased that HUD
           has agreed to implement recommendations to help improve public housing
           agencies’ compliance with lobbying requirements.




                                                19
Appendix B

                        Schedule of Payments Reported by Lobbyists
                                            Payments        Amount not                         Amount not
                                           reported by      disclosed by                       disclosed by
              Housing agencies
                                             lobbyists        housing                             MTW
                                           (2002-2012)        agencies                           agencies
     Housing Authority of the County
1                                         $ 750,000        $ 750,000                          $ 750,000
          of Santa Clara (MTW)
     Philadelphia Housing Authority
2                                            660,000          660,000                             660,000
                  (MTW)
       Allegheny County Housing
3                                            530,000          530,000
                 Authority
     Housing Authority of the City of
4                                            435,000
                Milwaukee
     Housing Authority of the County
5                                            445,000
        of San Bernardino (MTW)
         Wisconsin Housing and
6        Economic Development                310,000          310,000
                 Authority
     Housing Authority of the City of
7                                            160,000          160,000
                 Alameda
         New York City Housing
8                                            160,000
                 Authority
     Housing Authority of the City of
9                                             80,000           80,000                              80,000
            Pittsburgh (MTW)
10      Tampa Housing Authority               20,000           20,000
      Housing Authority of Portland
11                                                0 12              0                                    0
      (now Home Forward) (MTW)
          St. Cloud Housing and
12                                                012               0
        Redevelopment Authority
                    Totals                         $3,550,000            $2,510,000           $1,490,000




12
  The Lobbying Disclosure Act Database showed $0 in income when lobbyists reported amounts that were less than
the dollar thresholds identified by the Lobbying Disclosure Act.


                                                      20
Appendix C

     Schedule of Required Certifications Based on Payments Reported by Lobbyists
                                          Minimum # of
                                              required
                                                          Certifications Certifications
                                           certifications
               Housing agencies                             provided     not provided
                                            (2002-2012)
     Housing Authority of the County of
 1                                                8             7              1
     Santa Clara (MTW)
     Philadelphia Housing Authority
 2                                                5             5              0
     (MTW)
     Housing Authority of the County of
 3                                                8             8              0
     San Bernardino (MTW)
     Housing Authority of the City of
 4                                                2             2              0
     Pittsburgh (MTW)
     Housing Authority of Portland (now
 5                                                5             4              1
     Home Forward) (MTW)
            Totals (MTW)                        28             26              2
 6   Allegheny County Housing Authority         9               6              3
     Housing Authority of the City of
 7                                              4               4              0
     Milwaukee
     Wisconsin Housing and Economic
 8                                              10              0              10
     Development Authority
     Housing Authority of the City of
 9                                              4               4              0
     Alameda
10   New York City Housing Authority            2               1              1
11   Tampa Housing Authority                    1               1              0
     St. Cloud Housing and
12                                              7               3              4
     Redevelopment Authority
          Totals (non-MTW)                      37             19              18

             Grand totals                       65             45              20




                                           21
Appendix D

       Schedule of Required Disclosures Based on Payments Reported by Lobbyists
                                          Minimum #
                                          of required
                                                         Disclosures    Disclosures
                                           disclosures
               Housing agencies                           provided     not provided
                                          (2002-2012)
     Housing Authority of the County of
1                                               8             2              6
     Santa Clara (MTW)
     Philadelphia Housing Authority
2                                               5             5              0
     (MTW)
     Housing Authority of the County of
3                                               8             8              0
     San Bernardino (MTW)
     Housing Authority of the City of
4                                               2             2              0
     Pittsburgh (MTW)
     Housing Authority of Portland (now
5                                               5             0              5
     Home Forward) (MTW)
            Totals (MTW)                       28           17             11
     Wisconsin Housing and Economic
6                                              10            0             10
     Development Authority
     Housing Authority of the City of
7                                              4             4              0
     Milwaukee
8    Allegheny County Housing Authority        9             3              6
     Housing Authority of the City of
9                                              4             1              3
     Alameda
10   New York City Housing Authority           2             1              1
11   Tampa Housing Authority                   1             1              0
     St. Cloud Housing and
12                                             7             3              4
     Redevelopment Authority
          Totals (non-MTW)                     37           13             24

             Grand totals                      65           30             35




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