Office of the Chief Procurement Officer, Washington, DC The Government National Mortgage Association’s Contract With Burson-Marsteller Office of Audit, Region 3 Audit Report Number: 2016-PH-0002 Philadelphia, PA July 23, 2016 To: Keith W. Surber, Acting Chief Procurement Officer, N //signed// From: David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia Region, 3AGA Subject: HUD Did Not Ensure That All Costs for Ginnie Mae’s Contract With Burson- Marsteller Were Supported, Reasonable, and Necessary 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 the Government National Mortgage Association’s contract with public relations and communications firm Burson- Marsteller. 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 215-430-6734. Audit Report Number: 2016-PH-0002 Date: July 23, 2016 HUD Did Not Ensure That All Costs for Ginnie Mae’s Contract With Burson-Marsteller Were Supported, Reasonable, and Necessary Highlights What We Audited and Why We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of the Government National Mortgage Association’s (Ginnie Mae) contract for financial industry and media marketing services with public relations and communications firm Burson-Marsteller. We initiated the audit after we became aware of potential issues regarding the amount of funds used for services, which may not have been reasonable or necessary. Specifically, Ginnie Mae paid the firm to promote members of its senior staff. Our objective was to determine whether HUD ensured that costs for Ginnie Mae’s contract with Burson-Marsteller were reasonable, necessary, and supported. What We Found HUD did not ensure that all costs associated with Ginnie Mae’s contract with Burson-Marsteller were supported, reasonable, and necessary. Specifically, HUD did not ensure that (1) Ginnie Mae maintained adequate supporting documentation for invoices paid and (2) costs for promoting members of Ginnie Mae’s senior staff 1 were reasonable and necessary. This condition occurred because HUD did not have adequate oversight of Ginnie Mae’s procurement and contract administration processes. As a result, HUD did not have assurance that $1.8 million paid under Ginnie Mae’s contract with Burson-Marsteller was supported and that up to $1.1 million paid was for services that were reasonable and necessary. Unless HUD requires Ginnie Mae to improve its procurement and contract administration processes and increases its monitoring of Ginnie Mae, Ginnie Mae could incur additional costs under the Burson-Marsteller contract and future contracts that are not supported, reasonable, and necessary. What We Recommend We recommend that HUD’s Acting Chief Procurement Officer (1) assess Ginnie Mae’s processes and capabilities, and provide technical assistance to ensure that its staff is adequately trained on procurement and contract administration matters; (2) require Ginnie Mae to improve its procurement and contract administration processes to ensure that it follows all applicable requirements, thereby putting up to $259,008 to better use; and (3) increase monitoring to ensure that Ginnie Mae’s costs related to its contract with Burson-Marsteller and any future contracts are supported, reasonable, and necessary. 1 Primarily Ginnie Mae’s president, Theodore W. Tozer, and its former executive vice president, Mary K. Kinney Table of Contents Background and Objective......................................................................................3 Results of Audit ........................................................................................................4 Finding: HUD Did Not Ensure That All Costs for Ginnie Mae’s Contract Were Supported, Reasonable, and Necessary .......................................................................... 4 Scope and Methodology ...........................................................................................8 Internal Controls ....................................................................................................10 Appendixes ..............................................................................................................11 A. Schedule of Funds To Be Put to Better Use ............................................................ 11 B. Auditee Comments and OIG’s Evaluation ............................................................. 12 C. Summary of Invoices Reviewed ............................................................................... 20 2 Background and Objective The U.S. Department of Housing and Urban Development’s (HUD) Office of the Chief Procurement Officer was created in 1998 to streamline and improve HUD’s procurement operations. The office acquires products and services needed to support HUD’s program missions and infrastructure; assists program offices in defining and specifying their procurement needs; and provides advice, guidance, and technical assistance related to procurement. The Housing and Urban Development Act of 1968 created the Government National Mortgage Association (Ginnie Mae). Ginnie Mae’s mission is to bring global capital into the housing finance market while minimizing the risk to the taxpayer. It does this by providing a guarantee backed by the full faith and credit of the United States for the timely payment of principal and interest on mortgage-backed securities secured by pools of government home loans. Ginnie Mae is a self-financing, wholly owned U.S. Government corporation within HUD. Title III of the National Housing Act states that all the powers and duties of Ginnie Mae will be vested in the Secretary of HUD and Ginnie Mae will be administered under the direction of the Secretary. Further, the Act indicates that within the limitations of law, the Secretary will determine the general policies that will govern Ginnie Mae’s operations. Since July 2011, Ginnie Mae has maintained a contract 2 for financial industry and media marketing services with the public relations and communications firm Burson-Marsteller. The contract includes services, such as a marketing plan, media relations and clip services, conference and event support, stakeholder outreach and validation, legislative tracking, and Web site support. As of October 2015, Ginnie had paid more than $3.9 million for these services. Year Amount paid 2011 $503,676 2012 984,520 2013 798,982 2014 913,859 2015 794,339 Total $3,995,376 Our objective was to determine whether HUD ensured that costs for Ginnie Mae’s contract with Burson-Marsteller were reasonable, necessary, and supported. 2 Ginnie Mae issued a task order covering 1 year under the General Services Administration Federal Supply Schedule 541 (advertising and integrated marketing services), special item number 5 (integrated marketing services), in accordance with subpart 8.4 of the Federal Acquisition Regulation. It later executed modifications to increase the amount of the contract and extend the term. 3 Results of Audit Finding: HUD Did Not Ensure That All Costs for Ginnie Mae’s Contract Were Supported, Reasonable, and Necessary HUD did not ensure that all costs associated with Ginnie Mae’s contract with Burson-Marsteller were supported, reasonable, and necessary. Specifically, HUD did not ensure that (1) Ginnie Mae maintained adequate supporting documentation for invoices paid and (2) costs for promoting members of Ginnie Mae’s senior staff were reasonable and necessary. This condition occurred because HUD did not have adequate oversight of Ginnie Mae’s procurement and contract administration processes. As a result, HUD did not have assurance that $1.8 million paid under Ginnie Mae’s contract with Burson-Marsteller was supported and that up to $1.1 million paid was for services that were reasonable and necessary. Unless HUD requires Ginnie Mae to improve its procurement and contract administration processes and increases its monitoring of Ginnie Mae, Ginnie Mae could incur additional costs under the Burson-Marsteller contract and future contracts that are not supported, reasonable, and necessary. Ginnie Mae Did Not Always Have Adequate Supporting Documentation for Invoices Paid We reviewed 55 invoices that Ginnie Mae paid for its contract with Burson-Marsteller. HUD did not ensure that Ginnie Mae maintained adequate documentation to support costs associated with its contract. For example, • For 29 of the 55 invoices reviewed, Ginnie Mae did not have records detailing its request, approval, and receipt of the specific media outreach services performed. Both the contract and the HUD Acquisition Regulation, paragraph 2452.237-73(c), indicated that Ginnie Mae’s government technical representative (GTR) would issue guidance regarding work to be performed in writing or if issued orally, would confirm such direction in writing. 3 Further, HUD Handbook 2210.3 required the GTR to maintain a working file for the contract, including copies of all correspondence and notes of substantive oral communications with the contractor. While Ginnie Mae indicated that approval for media outreach services was usually handled over the telephone, it was unable to produce records detailing the phone calls or showing that the GTR had provided guidance. Further, while Ginnie Mae maintained a marketing plan with the contractor that referenced potential media opportunities, only a few specific media outreach activities were directly approved in the marketing plan. Finally, Ginnie Mae did not have a comprehensive list or copies of the deliverables provided by the contractor, such as articles, blog posts, and interviews related to its senior staff. • For 16 of the 55 invoices reviewed, Ginnie Mae’s records did not include supporting documentation, such as evidence of payments made and individual daily timecards. Both 3 The HUD Acquisition Regulation required confirmation in writing within 5 calendar days, and the contract required written confirmation within 10 calendar days. 4 the contract and Federal Acquisition Regulation (FAR), paragraph 52.232-7(a)(5), required the contractor to substantiate invoices by evidence of actual payment, individual daily timecards, records verifying that the employees meet the qualifications for the labor categories specified in the contract, or other substantiation specified in the contract. • For 1 of the 55 invoices reviewed, Ginnie Mae’s records did not include a description of the services that were performed for the period. Both the contract and section 24.52.232- 70 of the HUD Acquisition Regulation required the contractor to include all items required by section 52.232-25 of the FAR in its invoice. Paragraph 52.232-25(a)(3)(iv), FAR stated that invoices must include a description, quantity, and unit of measure for all services performed. As a result of the issues identified above, HUD did not have assurance that $1.8 million paid (see appendix C) under the contract by Ginnie Mae was supported and that the costs paid were for services requested and received by Ginnie Mae. Costs for Promoting Members of Ginnie Mae’s Senior Staff May Not Have Been Reasonable and Necessary Of the 55 invoices reviewed, 29 contained charges relating to the promotion of members of Ginnie Mae’s senior staff. 4 HUD did not ensure that these costs were reasonable and necessary. For example, according to the invoice documentation provided, Ginnie Mae paid for • Outreach to media outlets to position its president, Theodore W. Tozer, as an industry expert who could provide unique insights into the housing industry and economy. • An article placement with SHAPE.com, entitled “28 Powerful Women Share Their Best Advice.” In the article, Ginnie Mae’s former executive vice president, Mary K. Kinney, provided career advice for reaching personal goals and suggested that exercise and maintaining a healthy diet are essential for managing the stresses of a high profile position. • An article placement with Government Executive authored by Ginnie Mae’s former executive vice president, Mary K. Kinney, entitled “How to improve employee satisfaction by 50 percent.” • A blog post placement with Forbes authored by Ginnie Mae’s former executive vice president, Mary K. Kinney, on tips for women looking to succeed in financial services. Although promoting senior staff was not expressly prohibited by section 31.205-1 of the FAR, this activity did not clearly meet the FAR criteria for allowable public relations and advertising costs, did not clearly correspond to typical tasks listed under the General Services 4 The majority of the charges related to Ginnie Mae’s president, Theodore W. Tozer, and its former executive vice president, Mary K. Kinney. 5 Administration’s Federal Supply Schedule, 5 and may not have been reasonable and necessary. Ginnie Mae guarantees mortgage-backed securities of government-insured loans. These securities are issued by approved private lending institutions. Because Ginnie Mae is the primary agency to offer this service, is a wholly owned government corporation that is not required to make decisions to increase value for shareholders, 6 and does not work directly with consumers, media outreach initiatives to promote members of its senior staff may not have been reasonable or necessary. As a result, HUD did not have assurance that up to $1.1 million 7 disbursed was for costs that were reasonable and necessary. HUD Did Not Provide Adequate Oversight of Ginnie Mae’s Procurement and Contract Administration Processes The conditions above occurred because HUD’s Office of the Chief Procurement Officer did not regularly perform reviews of Ginnie Mae and did not adequately follow up on issues it identified. In May 2013, HUD performed contract file reviews for Ginnie Mae’s GTRs and identified several issues related to the Burson-Marsteller contract. For example, the GTR approved work orders without having proper written authority, the GTR’s file lacked documentation to support some charges, and the GTR’s file did not show that it had completed contractor performance assessment reports. Further, in April 2015, HUD completed a monitoring checklist related to the Burson-Marsteller contract, in which it noted that Ginnie Mae did not have copies of all correspondence between the GTR and the contractor, contracting officer, or others concerning the performance of the contract and indicated that Ginnie Mae had not maintained documentation and data to provide a complete history of all relevant actions taken by the GTR. However, HUD did not adequately follow up on the issues identified. While it provided a corrective action plan related to its 2013 review, the plan did not show the status of the recommendations. Further, HUD did not provide any follow up documentation related to its 2015 checklist. Conclusion HUD did not ensure that all costs associated with Ginnie Mae’s contract with Burson-Marsteller were supported, reasonable, and necessary. This condition occurred because HUD did not have adequate oversight of Ginnie Mae’s procurement and contract administration processes. As a result, HUD did not have assurance that $1.8 million paid under Ginnie Mae’s contract with Burson-Marsteller was supported and that up to $1.1 million paid was for services that were reasonable and necessary. Unless HUD requires Ginnie Mae to improve its procurement and contract administration processes and increases its monitoring of Ginnie Mae, Ginnie Mae could 5 Typical tasks listed in the advertising and integrated marketing solutions schedule included press, public relations, and crisis communications; training of agency personnel to deal with media; media alerts; and press clipping services. 6 The Federal National Mortgage Association and Federal Home Loan Mortgage Corporation are government- sponsored enterprises that were chartered by Congress. They are owned by shareholders and are under conservatorship. These agencies primarily guarantee mortgage-backed securities and loan portfolios of conventional loans. 7 The 29 invoices did not provide a breakdown of costs for each activity performed by the contractor during the billing period. However, the activities that promoted senior staff were billed as part of line items totaling approximately $1.1 million. 6 incur additional costs under the Burson-Marsteller contract and future contracts that are not supported, reasonable, and necessary. By improving its processes, Ginnie Mae will not spend funds on charges that are not reasonable and necessary and, instead, will spend those funds on costs that are reasonable and necessary, thereby putting up to $259,008 8 of funds to better use over the next year. Recommendations We recommend that HUD’s Acting Chief Procurement Officer 1A. Assess Ginnie Mae’s processes and capabilities, and provide technical assistance to ensure that its staff is adequately trained on procurement and contract administration matters. 1B. Require Ginnie Mae to improve its procurement and contract administration processes to ensure that it follows all applicable requirements, thereby putting up to $259,008 to better use. 1C. Increase monitoring of Ginnie Mae to ensure that costs related to its contract with Burson-Marsteller and any future contracts are supported, reasonable, and necessary. 8 This is the amount of funds that HUD can put to better use in the next 12 months. This amount was calculated by annualizing the average monthly amount that was charged to line items that included the promotion of senior staff during our 52 month audit period (July 2011 through October 2015). The calculation is: $1,122,345/52 months = $21,584/month x 12 months = $259,008 for a year. 7 Scope and Methodology We conducted the audit from April 2015 through June 2016 at HUD’s office located at 451 7th Street SW, Washington, DC, Ginnie Mae’s office located at 550 12th Street SW, Washington DC, and our office located in Philadelphia, PA. The audit covered the period July 2011 through October 2015. To accomplish our objective, we reviewed • Relevant background information; • Applicable laws, regulations, and HUD guidance; • The Burson-Marsteller contract, along with invoices and supporting documentation submitted by the contractor; • Payment registers, payment vouchers, and other documentation prepared by Ginnie Mae in relation to the contract; • Ginnie Mae’s draft and final marketing plans, along with its 2014 and 2015 fiscal year media coverage reports; • Articles, blogs, and interviews associated with the contract; • A May 2013 monitoring report prepared by HUD, along with related documents; and • An April 2015 monitoring checklist prepared by HUD. We interviewed responsible employees of Ginnie Mae and HUD staff located in Washington, DC. To achieve our audit objective, we relied in part on the Federal Procurement Data System – Next Generation computer-processed data. We used the data to help identify the contract reviewed. Although we did not perform a detailed assessment of the reliability of the data, we performed a minimal level of testing and found the data to be adequate for our purposes. Using the Federal Procurement Data System - Next Generation, we identified 11,454 procurement records for HUD covering October 2011 through March 2015. From these data, we identified 59 records covering 15 contracts that specifically related to public relations. 9 Of the 15 contracts, Ginnie Mae’s contract with Burson-Marsteller had the largest amount obligated and represented more than 35 percent of the total funds obligated to the 15 contracts for the period. Further, we identified publicly available information showing that Burson-Marsteller had billed Ginnie Mae for promoting members of its senior staff. Therefore, we limited the scope of our 9 Each record had a product or service code or a North American Industry Classification System code that included public relations in the code description. 8 review to this contract. Although this approach did not allow us to make a projection to the entire population of contracts related to public relations, it allowed us to review 100 percent of the invoices for the contract selected. We identified 55 invoices totaling nearly $4 million that were paid for the contract between July 2011 and October 2015. We obtained copies of the invoices and related documentation from Ginnie Mae as well as any other relevant documentation maintained by the GTR and Ginnie Mae’s finance staff. We reviewed this information to identify charges related to the promotion of members of senior staff and to evaluate the overall presence of supporting documentation. Appendix C contains details on the invoices reviewed. In addition to the documentation obtained from HUD and Ginnie Mae throughout the audit, we obtained and reviewed documentation from the contractor in response to an OIG subpoena. 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. 9 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 control was relevant to our audit objective: • Compliance with laws and regulations – Policies and procedures that management has implemented to reasonably ensure that the use of resources 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’s Office of the Chief Procurement Officer did not regularly perform reviews of Ginnie Mae to ensure that it complied with all applicable requirements and did not adequately follow up on issues it identified. 10 Appendixes Appendix A Schedule of Funds To Be Put to Better Use Recommendation Funds to be put number to better use 1/ 1B $259,008 1/ Recommendations that funds be put to better use are estimates of amounts that could be used more efficiently if an Office of Inspector General (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 instance, if HUD implements our recommendations, Ginnie Mae will not spend funds on charges that are not reasonable and necessary, either under the Burson-Marsteller contract or any future contracts, and, instead, will spend those funds on costs that are reasonable and necessary, thereby putting up to $259,008 of funds to better use over the next year. 11 Appendix B Auditee Comments and OIG’s Evaluation Ref to OIG Auditee Comments Evaluation Comment 1 Comment 2 Comment 3 12 Auditee Comments and OIG’s Evaluation Ref to OIG Auditee Comments Evaluation Comment 4 Comment 5 Comment 3 13 Auditee Comments and OIG’s Evaluation Ref to OIG Auditee Comments Evaluation Comment 6 Comment 7 Comment 8 14 Auditee Comments and OIG’s Evaluation Ref to OIG Auditee Comments Evaluation Comments 8 and 9 15 OIG Evaluation of Auditee Comments Comment 1 HUD stated that we did not have a discussion or “out-brief” with Ginnie Mae regarding the finding and recommendations and that if we had, the review may have resulted in a different assessment. 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. The objective of this audit was to determine whether HUD ensured that costs for Ginnie Mae’s contract with Burson-Marsteller were reasonable, necessary, and supported. During the audit, we contacted HUD and Ginnie Mae staff to obtain relevant documentation. While we did not meet with Ginnie Mae regarding the finding and recommendations because it was not the auditee, we informed HUD that it was welcome to share the results of the audit with Ginnie Mae. As discussed in the report, we believe that the evidence obtained during the audit provides a reasonable basis for our finding and conclusion. Comment 2 HUD contended that there was an incorrect reliance on allowable versus unallowable costs in accordance with section 31.205-1 of the FAR. We disagree. As discussed during the exit conference, we included the information from the FAR as a point of comparison because this section discusses public relations and advertising costs for contracts with commercial organizations and provides examples of allowable and unallowable public relations and advertising costs. As noted in the report, promoting members of senior staff was not expressly prohibited by section 31.205-1 of the FAR, nor did it clearly meet the criteria for allowable public relations and advertising costs. Comment 3 HUD contended that since costs directly incurred in the performance of the contract are allowable, the question of whether they should have been incurred is a policy question and not within the purview of the Office of the Chief Procurement Officer. Section 31.201-2 of the FAR states that a cost is allowable only when the cost is, among other factors, reasonable. Section 31.201-3 of the FAR states that a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Our review found that the costs for promoting Ginnie Mae’s senior staff may not have been reasonable in nature. HUD’s Office of the Chief Procurement Officer is responsible for all matters related to HUD’s acquisition-related needs and activities, including managing the acquisition workforce, in addition to conducting procurement activities. While we understand that this office works with the program offices and Ginnie Mae when conducting procurement activities, we believe that the question of whether these costs should have been incurred is within the purview of HUD’s Office of the Chief Procurement Officer. Comment 4 HUD contended that unless the costs for promoting members of Ginnie Mae’s senior staff were determined to not be reasonable, as defined in the FAR, they 16 should not be considered unallowable. We agree. However, section 31.201-3 of the FAR states that a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Although promoting members of senior staff was not expressly prohibited by section 31.205-1 of the FAR, our review found that the costs for promoting Ginnie Mae’s senior staff may not have been reasonable in nature. Ginnie Mae guarantees mortgage-backed securities of government- insured loans. These securities are issued by approved private lending institutions. Ginnie Mae is the primary agency to offer this service, is a wholly owned government corporation that is not required to make decisions to increase value for shareholders, and does not work directly with consumers. Therefore, media outreach initiatives to promote members of its senior staff, particularly articles that do not pertain specifically to the work of Ginnie Mae, may not have been reasonable or necessary. Comment 5 HUD stated that Ginnie Mae believed that there was inadequate communication and understanding and that there was supporting documentation available for review. During the audit, we conducted two onsite visits to Ginnie Mae’s office. We also communicated via email during the period October 2015 to February 2016. In some of the email communication, Ginnie Mae stated that certain documents, such as individual work orders and a summary of activity report, did not exist and, therefore, could not be provided to support the questioned costs. We also communicated our findings to HUD during the audit, and it did not indicate that there was additional documentation available for review. Further, in HUD’s April 2015 monitoring checklist, it found that Ginnie Mae did not have copies of all correspondence between the GTR and the contractor, contracting officer, or others concerning the performance of the contract and indicated that Ginnie Mae had not maintained documentation and data to provide a complete history of all relevant actions taken by the GTR. In addition to the documentation obtained from HUD and Ginnie Mae throughout the audit, we obtained documentation from the contractor in response to an OIG subpoena. This documentation included electronic documentation related to the promotion of members of Ginnie Mae’s senior staff. We reviewed more than 1,000 documents obtained through the subpoena but did not identify any additional records detailing Ginnie Mae’s request, approval, and receipt of specific media outreach services performed. Comment 6 Ginnie Mae contended that the former GTR was not interviewed by OIG nor were her extensive electronic files considered. While we did not interview the former GTR, we copied her on emails in which we asked for supporting documentation for invoices. For example, we emailed the current GTR and the former GTR (after she had returned from medical leave) requesting a copy of the summary of activity report for the one invoice that did not include a description of the services performed for the period. Neither was able to provide a copy of the report for our 17 review. In addition, we emailed Ginnie Mae’s chief financial officer, the current GTR, and the former GTR to request documentation regarding ordered services. In reply to this email, the current GTR stated that Ginnie Mae did not develop individual work orders for each assignment under the contract. Further, Ginnie Mae should have had controls in place to ensure that no matter who the GTR was at any point in time, the official Government files were accessible to the organization and contained all of the relevant information and documentation, whether maintained in hardcopy, electronically, or both. The current GTR should have had all relevant information. As mentioned in comment 5, we obtained documentation from the contractor. This documentation included electronic documentation related to the promotion of members of Ginnie Mae’s senior staff. We did not identify any additional records detailing Ginnie Mae’s request, approval, and receipt of specific media outreach services performed. Comment 7 Ginnie Mae stated that a 2015 review by HUD found that while supporting documentation was not in the GTR file, it was available electronically. HUD’s April 2015 monitoring checklist noted that there were electronic files related to monitoring and periodic evaluations of contractor performance; inspection, acceptance, and monitoring; and required administrative, financial, and technical progress reports. However, the checklist indicated that Ginnie Mae did not have copies of all correspondence between the GTR and the contractor, contracting officer, or others concerning the performance of the contract and indicated that Ginnie Mae had not maintained documentation and data to provide a complete history of all relevant actions taken by the GTR. The checklist did not note that there were electronic files related to these checklist items. Also, as mentioned in comment 5, we obtained documentation from the contractor. We did not identify any additional records detailing Ginnie Mae’s request, approval, and receipt of specific media outreach services performed. Comment 8 Ginnie Mae contended that promoting the knowledge and skills of corporate leadership is a standard practice of any successful corporation and instilling confidence in Ginnie Mae’s leadership, particularly its top staff, is crucial because issuers and investors active in the program participate voluntarily. Ginnie Mae further stated that issuers’ and investors’ confidence that its top leaders are capable and knowledgeable and can make financial decisions is a crucial element in successfully accomplishing its mission. We disagree. Ginnie Mae guarantees mortgage-backed securities of government-insured loans. These securities are issued by approved private lending institutions. Ginnie Mae is the primary agency to offer this service, is a wholly owned government corporation that is not required to make decisions to increase value for shareholders, and does not work directly with consumers. Therefore, media outreach initiatives to promote members of its senior staff, particularly articles that do not pertain specifically to 18 the work of Ginnie Mae, may not have been reasonable or necessary. For example, Ginnie Mae paid the contractor for an article placement with SHAPE.com, in which its former executive vice president, Mary K. Kinney, provided career advice for reaching personal goals and suggested that exercise and maintaining a healthy diet are essential for managing the stress of a high- profile positon. We do not believe that this media initiative showed that Ginnie Mae’s top leaders were capable and knowledgeable and could make financial decisions or informed stakeholders that Ginnie Mae had the appropriate leadership in place to efficiently execute the program. Comment 9 Ginnie Mae contended that its charter explicitly directed it to be active and competitive in the secondary market. However, Ginnie Mae did not provide a reference to the specific provision, and we were unable to substantiate its existence based on a review of Title III of the National Housing Act, which contains Ginnie Mae’s authorizing statute. 19 Appendix C Summary of Invoices Reviewed Amount charged Amount Amount Total to line items that missing a Invoice Invoice missing # invoice included the summary of number date 10 invoice amount promotion of activities support senior staff report 1 192552 9/15/2011 $50,321 2 193996 9/16/2011 310,619 3 197572 11/14/2011 68,291 4 195500 11/22/2011 74,444 $74,444 5 198978 12/12/2011 46,000 $46,000 6 199058 12/12/2011 65,449 65,449 7 201078 1/11/2012 32,209 32,209 8 202966 2/10/2012 50,984 50,984 9 204591-9 3/14/2012 29,528 29,528 10 206293 4/10/2012 61,058 61,058 11 208081 5/15/2012 68,973 68,973 12 209827 6/12/2012 42,806 42,806 13 211584 7/12/2012 33,640 $19,587 14 212249 7/27/2012 13,446 15 21365 8/20/2012 49,115 31,881 16 26000 9/11/2012 69,698 46,961 69,698 17 222100346 9/28/2012 240,540 18 222100595 10/10/2012 56,797 44,855 56,797 19 222101194 11/13/2012 58,356 35,462 20 222101923 12/10/2012 65,920 47,072 21 222102801 1/17/2013 54,337 44,880 22 222104126 3/13/2013 68,288 32,324 68,288 23 222103310 4/3/2013 60,406 32,904 24 222104968 4/11/2013 80,020 16,377 80,020 25 222105632 5/10/2013 74,563 26 222106351 6/11/2013 38,860 13,175 27 222106910 7/9/2013 31,327 13,686 28 222107130 7/19/2013 9,640 3,676 9,640 29 222107515 8/21/2013 279,214 260,391 30 222107939 9/10/2013 35,659 14,969 10 The invoice dates shown were taken from the payment register provided by Ginnie Mae. 20 Amount charged Amount Amount Total to line items that missing a Invoice Invoice missing # invoice included the summary of number date 11 invoice amount promotion of activities support senior staff report 31 222108604 10/17/2013 41,840 17,417 32 222109076 11/19/2013 24,830 7,376 33 222109927 1/7/2014 48,692 14,775 34 222110176 1/17/2014 43,706 25,903 35 222110543 2/28/2014 49,911 16,751 49,911 36 222111334 4/24/2014 50,361 22,303 50,361 37 222110787 5/27/2014 39,392 17,399 38 222111922 5/27/2014 44,303 26,853 39 222112493 6/25/2014 35,972 40 222113059-39 8/12/2014 75,652 41 222113502 8/18/2014 166,340 42 22211350 9/25/2014 52,850 52,850 43 222113453 9/25/2014 179,821 44 222114558 10/27/2014 56,847 45 222115006 11/24/2014 70,013 46 222115506 12/22/2014 33,536 21,565 47 222115932 1/30/2015 35,966 48 222116168 2/23/2015 54,825 28,827 49 222116494 4/14/2015 68,365 30,791 50 222116934 4/22/2015 52,712 17,709 51 222117396 5/20/2015 52,462 18,031 52 222117858 6/24/2015 67,698 53 222118264 7/28/2015 141,753 54 222118649 9/15/2015 51,027 55 222119118 10/6/2015 235,994 198,445 Totals $3,995,376 $1,122,345 12 $834,572 $74,444 Total amount discussed in the finding $1,848,114 13 11 The invoice dates shown were taken from the payment register provided by Ginnie Mae. 12 The 29 invoices did not provide a breakdown of costs for each activity performed by the contractor during the billing period. However, the activities that promoted senior staff were billed as part of line items totaling approximately $1.1 million. 13 The $1,848,114 includes $834,572 for invoices that were missing support, $74,444 for the invoice that did not include a summary of activities report, and $939,098 for line items that included the promotion of senior staff on invoices not included in the other two categories. The remaining $183,247 shown for line items that included the promotion of senior staff was part of invoices that were also missing supporting documentation. 21
HUD Did Not Ensure That All Costs for Ginnie Mae's Contract With Burson-Marsteller Were Supported, Reasonable, and Necessary
Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-07-23.
Below is a raw (and likely hideous) rendition of the original report. (PDF)