U.S. Department of Housing and Urban Development, Washington, DC Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements Audit Office of Audit, Financial Audits Division Audit Report Number: 2017-FO-0004 Washington, DC November 18, 2016 To: Courtney Timberlake, Deputy Chief Financial Officer, F /signed/ From: Thomas R. McEnanly, Director, Financial Audits Division, Washington DC, GAF Subject: Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Consolidated Financial Statements Audit Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) independent auditor’s report on HUD’s consolidated financial statements and reports on internal controls over financial reporting and compliance with laws and regulations. HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on recommended corrective actions. For each recommendation without a management decision, please respond and provide status reports in accordance with the HUD Handbook. Please furnish us copies of any correspondence or directives issued because of the audit. The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its publicly available reports on the OIG Web site. Accordingly, this report will be posted at http://www.hudoig.gov. If you have any questions or comments about this report, please do not hesitate to call me at 202-402-8216. Audit Report Number: 2017-FO-0004 Date: November 18, 2016 Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Consolidated Financial Statements Audit Highlights What We Audited and Why In accordance with the Chief Financial Officers Act of 1990, as amended, we are required to annually audit the consolidated financial statements of the U.S. Department of Housing and Urban Development (HUD) and the stand-alone financial statements of the Federal Housing Administration and the Government National Mortgage Administration (Ginnie Mae). Our objective was to express an opinion on the fairness of the financial statements in accordance with U.S. generally accepted accounting principles applicable to the Federal Government. This report presents the results of our audit of fiscal years 2016 and 2015 (Restated) HUD consolidated financial statements, including our report on HUD’s internal control and test of compliance with applicable laws and regulations. What We Found We expressed a disclaimer of opinion on HUD’s fiscal years 2016 and 2015 (Restated) consolidated financial statements because of HUD’s inability to deliver principal financial statements for the fiscal years ending September 30, 2016 and 2015 (Restated) and accompanying notes in a timely manner. In addition, there were several other unresolved audit matters, which restricted our ability to obtain sufficient, appropriate evidence to express an opinion. These unresolved audit matters relate to (1) OGC’s declination of signing the management representation letter; (2) HUD’s improper use of cumulative and first-in, first-out budgetary accounting methods of disbursing community planning and development program funds; (3) the $4.2 billion in nonpooled loan assets from Ginnie Mae’s stand-alone financial statements that we could not audit because Ginnie Mae could not provide adequate support for us to test these asset balances; (4) the improper accounting for HUD’s assets and liabilities related to grant accruals; loan guarantees; property, plant, and equipment; accounts receivable; payables; and prepayments; and (5) material differences between HUD’s subledger and general ledger accounts. This audit report contains 11 material weaknesses, 7 significant deficiencies in internal controls, and 5 instances of noncompliance with applicable laws and regulations. These weaknesses were due to an inability to establish a compliant control environment, implement adequate financial accounting systems, retain key financial management staff, and identify appropriate accounting principles and policies. What We Recommend Our recommendations regarding each of the components’ findings were made in audit reports 2017-FO-0001, 2017-FO-0002, and 2017-FO-0003. Table of Contents Independent Auditor’s Report................................................................................3 Appendixes ..............................................................................................................24 A. Auditee Comments .................................................................................................... 24 B. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 26 C. HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements and Notes ................................................................................................ 27 2 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OFFICE OF INSPECTOR GENERAL Independent Auditor’s Report 1 To the Secretary, U.S. Department of Housing and Urban Development: Report on the Financial Statements The Chief Financial Officers Act of 1990 (CFO Act) requires the U.S. Department of Housing and Urban Development (HUD) to prepare the accompanying consolidated balance sheets as of September 30, 2016 and 2015 (Restated); the related consolidated statements of net cost, changes in net position, and combined statement of budgetary resources for the fiscal years then ended; and the related notes to the financial statements. We were engaged to audit those financial statements in accordance with generally accepted government auditing standards accepted in the United States of America and Office of Management and Budget (OMB) Bulletin 15-02. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, which include the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 1 This report is supplemented by three separate reports issued by the HUD Office of Inspector General (OIG) to provide a more detailed discussion of the internal control and compliance issues and to provide specific recommendations to HUD management. The findings have been included in the internal control and compliance with laws and regulations sections of the independent auditor’s report. The supplemental reports are available on the HUD OIG Internet site at https://www.hudoig.gov and are entitled (1) Additional Details To Supplement Our Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Financial Statement Audit (audit report 2017-FO-0003, issued November 15, 2016); (2) Audit of Federal Housing Administration Financial Statements for Fiscal Years 2016 and 2015 (Restated) (audit report 2017-FO-0002, issued November 14, 2016); and (3) Audit of the Government National Mortgage Association’s Financial Statements for Fiscal Years 2016 and 2015 (Restated) (audit report 2017-FO-0001, issued November 14, 2016). 3 Auditor’s Responsibility The OIG is required by the CFO Act, as amended by the Government Management Reform Act of 1994 and implemented by OMB Bulletin 15-02, Audit Requirements for Federal Financial Statements, to audit HUD’s principal financial statements or select an independent auditor to do so. Our responsibility is to express an opinion on the fair presentation of these principal financial statements in all material respects, in conformity with accounting principles generally accepted in the United States of America. Because of the matters described in the Basis for Disclaimer of Opinion section, however, we were not able to obtain sufficient, appropriate audit evidence to provide a basis for an audit opinion. The audit was conducted in accordance with government auditing standards generally accepted in the United States of America, which require the auditor to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Basis for Disclaimer of Opinion Due to late restatements performed by HUD’s component entities, the Government National Mortgage Association (Ginnie Mae) and Federal Housing Administration (FHA), and delays in HUD’s reporting process, HUD was unable to provide final consolidated financial statements and accompanying notes in a timeframe that would allow us to obtain sufficient, appropriate evidence to determine if they were free from material misstatement. Therefore, we are unable to provide an opinion on the fiscal year 2016 and 2015 (Restated) consolidated financial statements and accompanying notes at this time. In addition, during our fiscal year 2016 audit, HUD’s general counsel refused to sign off on certain matters included in the management representation letter concerning all known actual or possible litigation, claims, and assessments related to HUD, including its component entities. OIG believes that HUD’s legal counsel is responsible for and knowledgeable about those matters that should be considered in OCFO management’s preparation and fair presentation of the financial statements. Due to legal counsel’s refusal to sign off on these matters, which is a scope limitation, we lacked assurance that all known actual or possible litigation, claims and assessments had been properly accounted for or disclosed in the consolidated financial statements in accordance with generally accepted accounting principles. Lastly, we identified several other matters for which we were unable to obtain adequate audit evidence to provide a basis of opinion on the fiscal years 2016 and 2015 (restated) financial statements. When evaluating these areas and their impacts on the financial statements as a whole, we determined that multiple material financial statement line items were impacted and the issues identified were pervasive and material to the fiscal years 2016 and 2015 consolidated financial statements. There were no other satisfactory audit procedures that we could adopt to obtain sufficient, appropriate evidence with respect to these unresolved matters. These additional matters would have contributed to a disclaimer of opinion if consolidated financial statements and notes and disclosures were made available in a timeframe that allowed for our 4 review and validation. Readers are cautioned that amounts reported in the financial statements and related notes may not be reliable. The other matters that we identified related to (1) improper budgetary accounting; (2) disclaimer of opinion on Ginnie Mae’s financial statements; (3) unvalidated grant accrual estimates; (4) improper and unreliable accounting for assets and liabilities; and (5) significant unreconciled subledger to general ledger differences. Additional details are discussed below. Improper budgetary accounting. HUD continued to use budgetary accounting for the Office of Community Planning and Development (CPD) programs that was not performed in accordance with Federal generally accepted accounting principles (GAAP), which resulted in misstatements in HUD’s combined statement of budgetary resources. Therefore, we could not assess whether the balances reported were reasonable. HUD used a cumulative and first-in first-out (FIFO) method 2 to disburse and commit CPD program funds that was not in accordance with GAAP for Federal grants. These methods were used to determine the amount of uncommitted HOME Investment Partnerships Program grant funds that would be subject to reallocation and recapture under section 218(g) of the HOME Investment Partnership Act and to process disbursements for CPD formula programs, respectively. The effects of these methodologies were considered pervasive because of the dollar risk exposure and volume of CPD grant activities from several thousand grantees (as of September 30, 2016, approximately $2.7 billion in disbursements and $2.4 billion in undisbursed obligations were impacted that are related to the HOME program, Community Development Block Grant, Housing for Persons with AIDS, and Emergency Shelter Grant) and the system limitations of HUD’s grant management and mixed accounting system to properly account for these grant transactions in accordance with the statutory requirements and GAAP. Due to these issues, we determined that financial transactions related to CPD’s formula- based programs that entered HUD’s accounting system had been processed incorrectly. Although FIFO has been removed for disbursements made from fiscal year 2015 and forward grants, this method will not be removed retroactively from prior-year grants. Thus, based on the pervasiveness of their effects, in our opinion, the obligated and unobligated balance brought forward and obligated and unobligated balances reported in HUD’s combined statement of budgetary resources for fiscal year 2015 and in prior years 2 The Federal Accounting Standards Advisory Board (FASAB) Handbook defines FIFO as a cost flow assumption. The first goods purchased or produced are assumed to be the first goods sold (FASAB Handbook, Version 13, appendix E, page 30, dated June 2014). In addition, the Financial Audit Manual states that the use of “first-in, first- out” or other arbitrary means to liquidate obligations based on outlays is not generally acceptable (GAO-PCIE (U.S. Government Accountability Office-President’s Council on Integrity and Efficiency) Financial Audit Manual, Internal Control Phase, Budget Control Objectives, page 395, F-3). In the context of HUD’s use of this method, the first funds appropriated and allocated to the grantee are the first funds committed and disbursed, regardless of the source year in which grant funds were committed for the activity. 5 were materially misstated. The related amount of material misstatements for these CPD programs in the accompanying combined statement of budgetary resources could not be readily determined to reliably support the budgetary balances reported by HUD at yearend due to the inadequacy of evidence available from HUD’s mixed accounting and grants management system. Disclaimer of opinion on Ginnie Mae financial statements. In fiscal year 2016, for the third consecutive year, Ginnie Mae could not bring its material asset balances related to its nonpooled loan assets into an auditable state. Specifically, we were unable to obtain sufficient, appropriate evidence to express an opinion on the fairness of the $4.2 billion (net of allowance) in nonpooled loan assets from Ginnie Mae’s defaulted issuers’ portfolio, and Ginnie Mae continued to improperly account for FHA reimbursable costs as an expense instead of capitalizing the costs as an asset. A number of Ginnie Mae balance sheet line items made up the $4.2 billion in nonpooled loan assets, 3 which were consolidated into the other-non-credit reform loans reported on HUD’s consolidated balance sheet. This condition occurred because Ginnie Mae lacked financial management systems capable of handling Ginnie Mae’s loan-level transaction accounting requirements. Therefore, we were again unable to perform all of the audit procedures needed to obtain sufficient, appropriate evidence. As a result, we determined that our audit scope was insufficient to express an opinion on Ginnie Mae’s $4.2 billion in nonpooled loan assets as of September 30, 2016. Ginnie Mae continued to improperly account for FHA reimbursable costs as an expense instead of capitalizing the costs as an asset in fiscal year 2016. This practice caused Ginnie Mae’s asset and net income line items to be misstated, resulting in misstatements in HUD’s consolidated assets, expenses, and net position. Due to multiple years of incorrect accounting, we believe the cumulative effect of the errors identified was material. However, we were unable to determine with sufficient accuracy a proposed adjustment to correct the errors due to insufficient available data. Unvalidated grant accrual estimates. In reporting on HUD’s liabilities, HUD’s principal financial statements were not prepared in accordance with the requirements of the Federal Government and Federal Accounting Standards Advisory Board (FASAB) Technical Release (TR) 12. FASAB TR 12 provides guidance to agencies on developing reasonable estimates of accrued grant liabilities to report on their financial statements. We were unable to obtain sufficient, appropriate audit evidence that the fiscal years 2015 and 2016 estimates were reasonable. This lack of evidence was due to (1) CPD’s not validating its accrued grant liability estimates, (2) CPD’s inability to provide adequate supporting documentation for grant disbursements in a timely manner, and (3) insufficient time to 3 These are (1) mortgage loans held for investment, net ($3.47 billion); (2) claims receivable, net ($709 million); (3) accrued interest receivable, net ($19 million); and (4) acquired property, net ($41 million). 6 perform all of the audit procedures we deemed necessary to obtain sufficient, appropriate audit evidence to form an opinion on the estimate in lieu of adequate validation procedures by CPD. There were no other compensating audit procedures that could be performed to obtain reasonable assurance regarding CPD’s accrued grant liability estimates. Therefore, we could not form an opinion on CPD’s accrued grant liability estimates for fiscal years 2016 and 2015. CPD’s estimated accrued grant liabilities were $2.3 billion and $2 billion for fiscal years 2016 and 2015, respectively. These amounts accounted for 85 percent of HUD’s total $2.7 billion accrued grant liabilities for fiscal year 2016 and 84 percent of HUD’s total $2.4 billion accrued grant liabilities in fiscal year 2015. Improper and unreliable accounting for assets and liabilities. HUD did not properly account for several types of assets and liabilities reported on its balance sheet, causing misstatements or unreliable balances. Specifically, (1) balances reported for non-FHA loan guarantees and property, plant, and equipment balances could not be relied upon; (2) payments advanced to Indian Housing Block Grant (IHBG) grantees for investment purposes were not recorded as advances; and (3) loans receivable related to the Emergency Homeowners’ Loan Program (EHLP) could not be audited. During fiscal year 2016, HUD was undergoing a reconciliation and cleanup effort for balances related to its non-FHA loan guarantee programs. Many discrepancies had been identified and adjustments had been processed during the fiscal year to address some of the discrepancies identified totaling $17.3 billion. However, as of September 30, 2016, HUD was in the process of researching and resolving additional discrepancies identified, and the review was ongoing. As a result, we could not rely on HUD’s non-FHA loan guarantee balances, including its loan guarantee liability ($303 million), foreclosed property ($36 million), unpaid obligations ($22.4 million), and memorandum accounts used to track the status of loan guarantee authority. There were no other compensating audit procedures that could be performed to obtain reasonable assurance regarding these balances. HUD’s accounting for its property, plant, and equipment did not comply with Federal GAAP. Specifically, HUD could not support balances related to internal use software totaling $254.3 million. In addition, HUD did not adequately record property, plant, and equipment balances related to furniture and equipment and leasehold improvements. Therefore, the total HUD proper property, plant, and equipment balance of $297 million could not be relied upon. HUD authorized recipients of Federal funds to retain funding advanced to it before incurring eligible expenses; however, HUD did not recognize these funds as advances on its financial statements in accordance with Statements on Federal Financial Accounting Standards 1. As of June 30, 2016, as much as $260.1 million was being held in investment accounts with IHBG grantees, which represented an advance in accordance with the standards. HUD elected to present these as expenses on its statement of net cost once they were disbursed. Therefore, we believe the Office of Public and Indian Housing (PIH) prepayment reported on HUD’s consolidated balance sheet and expenses reported on HUD’s consolidated statement of net cost were likely misstated as of September 30, 2016. 7 Lastly, weaknesses in the accounting for the EHLP loans receivable portfolio continued, which limited our ability to audit during the fiscal year. A data review was performed during the fiscal year as a result of serious deficiencies in the accuracy of the loan balances identified in our prior-year audit report. 4 However, adjustments to correct the loan data were being made as of the end of our fieldwork. Therefore, we were unable to obtain sufficient, appropriate evidence to express an opinion on the fairness of the balances reported in the direct loan and loan guarantees line item reported on HUD’s consolidated balance sheet as of September 30, 2016, related to EHLP. The total loan principal issued under this program was $246 million; however, we were unable to determine whether the current balance recognized on the consolidated balance sheet of $103.2 million was an accurate net realizable value of the portfolio. Significant unreconciled subledger to general ledger differences. During the fiscal year, HUD initiated a subledger review and identified material differences between its subledgers and general ledger accounts. As of September 30, 2016, its subledger review was ongoing, and there was an unreconciled balance of $29.4 billion. These differences remained unresolved mainly because HUD could not identify and locate sufficient documentation to support material United States Standard General Ledger (USSGL) accounts. The reconciling differences were material and pervasive and impacted several USSGL accounts and financial statement line items. A total of $27.9 billion represented differences in unpaid obligation balances. The remaining $1.5 billion difference impacted the PIH prepayments (advances), liability for nonentity assets not reported on statement of custodial activity (other liabilities), loan guarantee liability, and account receivable balances reported on HUD’s consolidated balance sheet. While progress had been made in the resolution of differences since September 30, 2016, differences remained that, combined, were material to the financial statements. Due to HUD’s inability to support the balances recorded in the USSGL with sufficient, adequate documentation, we were unable to rely on the balances presented in HUD’s consolidated balance sheet and the combined statement of budgetary resources. Disclaimer of Opinion Because of the significance of the matters described in the Basis for Disclaimer of Opinion section above, we were not able to obtain sufficient, appropriate audit evidence to provide an audit opinion on HUD’s principal financial statements and accompanying notes as of September 30, 2016 and 2015 (restated), and its net costs, changes in net position, and budgetary resources for the fiscal year then ended. Accordingly, we do not express an opinion on the financial statements. 4 Audit Report 2015-DP-0004, Loan Accounting System, issued December 9, 2014 8 Emphasis of Matter Restatement At the time of issuance of this auditor’s report and as discussed in note 31 to the financial statements, the 2015 financial statements have been restated for the correction of errors related to (1) Ginnie Mae’s improper budgetary closing process and (2) FHA’s improper use of the raw data used to establish FHA’s maintenance and operating expense rate management assumption. Our opinion was not modified with respect to these matters. However, there were other material misstatements in the fiscal year 2016 financial statements in which no adjustments had been made. Specifically, (1) regarding the use of the FIFO method to liquidate obligations under CPD’s formula grant programs, no adjustments had been made because the specific amount of misstatements and their related effects were unknown and (2) regarding advanced funds held by grantees for IHBG grantees, which totaled as much as $260 million as of June 30 30, 2016, an amount could not be reasonably determined as of September 30, 2016, because HUD could not provide the information needed to quantify the amount. These amounts were not included in the financial statements due to HUD’s disagreement regarding the presentation of these advances. Additional details on these items can be found in note 31 to the financial statements. Prior-Period Financial Statements In our report, dated November 18, 2015, we reported that FHA’s financial statements for fiscal years 2015 and 2014, respectively, fairly presented the financial position of FHA’s financial statements as of September 30, 2015 and 2014, and its net costs, changes in net position, and budgetary resources for the years then ended in accordance with GAAP. However, in fiscal year 2016, new information concerning material errors affecting the 2015 and 2014 FHA financial statements were identified. For this reason, the opinion expressed in FHA’s 2015 and 2014 audited financial statements was no longer appropriate because the financial statements as published at that time contained material misstatements. Accordingly, our opinion on FHA’s audited financial statements for 2015 and 2014 is withdrawn because the statements can no longer be relied upon and is replaced by the auditor’s report on the restated financial statements. As a result, the basis for disclaimer expressed on HUD’s consolidated 2015 and 2014 audited financial statements is expanded to include the material errors that affected those financial statements, which are further described in note 31. FHA’s Loan Guarantee Liability FHA’s loan guarantee liability is an actuarially determined estimate of the net present value of future claims, net of future premiums, and future recoveries from loans insured as of the end of the fiscal year. This estimate is developed using econometric models that integrate historical loan-level program and economic data with regional house price appreciation forecasts to develop assumptions about future portfolio performance. This year’s estimate is the mean value from a series of projections using many economic scenarios, and FHA’s single-family liability for loan guarantee estimates reported as of September 30, 2016, could change depending on which economic outcome prevails. This forecast method helps project how the estimate will be affected by different economic scenarios but does not address the risk that the models may not accurately reflect current 9 borrower behavior or may contain technical errors. Our opinion was not modified with respect to this matter. Other Matters Required Supplementary Information U.S. GAAP requires that certain information be presented to supplement the basic general- purpose financial statements. Such information, although not a part of the basic general-purpose financial statements, is required by FASAB, which considers it to be an essential part of financial reporting for placing the basic general-purpose financial statements into an appropriate operational, economic, or historical context. We did not audit and do not express an opinion or provide any assurance on this information; however, we applied certain limited procedures in accordance with auditing standards generally accepted in the United States of America, which consisted principally of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to the auditor’s inquiries, the basic financial statements, and other knowledge the auditor obtained during the audit of the basic financial statements. These limited procedures do not provide sufficient evidence to express an opinion or provide assurance on the information. In its fiscal year 2016 agency financial report, HUD presents “required supplemental stewardship information” and “required supplementary information.” The required supplemental stewardship information presents information on investments in non-Federal physical property and human capital and investments in research and development. In the required supplementary information, HUD presents a “management discussion and analysis of operations” and combining statements of budgetary resources. HUD also elected to present consolidating balance sheets and related consolidating statements of changes in net position as required supplementary information. The consolidating information is presented for additional analysis of the financial statements rather than to present the financial position and changes in net position of HUD’s major activities. This information is not a required part of the basic financial statements but is supplementary information required by FASAB and OMB Circular A-136. Other Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. HUD’s agency financial report contains other information that is not a required part of the basic financial statements. Such information has not been subjected to the auditing procedures applied in the audit of the principal financial statements, and, accordingly, we do not express an opinion or provide assurance on it. 10 Additional details on our findings regarding HUD’s, FHA’s, and Ginnie Mae’s internal controls are summarized below and were provided in separate audit reports to HUD management. 5 These additional details also augment the discussions of instances in which HUD had not complied with applicable laws and regulations; the information regarding our audit objectives, scope, and methodology; and recommendations to HUD management resulting from our audit. Report on Internal Control 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, to prevent or detect and correct misstatements on a timely basis. A significant deficiency is a deficiency or combination of deficiencies in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. Our consideration of internal control was for the limited purpose described above and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, we noted in our reports the following nine material weaknesses and eight significant deficiencies. Material Weaknesses A material weakness is a deficiency or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. We noted the following deficiencies met the definition of a material weakness: Weak Internal Controls Over Financial Reporting Led to Errors and Delays in the Preparation of Financial Statements and Notes Internal controls over HUD’s financial reporting process were weak, causing HUD to be unable to provide year end financial statements and accompanying notes in a timeframe that would allow for sufficient OIG audit review. Additionally, Ginnie Mae closed material accounts prematurely. Finally, HUD performed 2,868 journal vouchers to adjust transactional data in its general ledger, primarily due to data quality issues. Ineffective governance over HUD’s transition to a Federal Shared Service Provider (FSSP), Treasury’s Administrative Resource 5 Audit Report 2017-FO-0003, Additional Details To Supplement Our Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Financial Statements, issued November 15, 2016; Audit Report 2016-FO-0002, Federal Housing Administration Fiscal Year 2016 and 2015 (Restated) Financial Statements Audit, issued November 14, 2016; Audit Report 2017-FO-0001, Audit of the Government National Mortgage Association’s Fiscal Years 2016 and 2015 (Restated) Financial Statements , issued November 14, 2016 11 Center (ARC), and Ginnie Mae’s budgetary accounting created an ineffective financial reporting environment that could not prevent and detect errors in a timely manner. As a result, (1) we could not audit HUD’s year end financial statements and accompanying notes, (2) HUD’s fiscal year 2016 third quarter financial statement notes contained unsupported balances and errors totaling $477 million, and (3) HUD had to restate its fiscal year 2015 statement of budgetary resources due to an error with an absolute value of $2 billion. Further, HUD’s extensive reliance on manual journal vouchers increased the risk of error in its general ledger and financial statements. HUD Assets and Liabilities Were Misstated and Not Adequately Supported HUD did not properly account for, have internal controls over, or have adequate support for all of its assets and liabilities. Specifically, (1) CPD did not validate its accrued grant liabilities estimates; (2) HUD’s accounting for its cash management process did not include the recognition of receivables and payables when incurred and understated its prepayment balance; (3) HUD did not recognize a prepayment for funds advanced to its IHBG grantees that were used for investment; (4) EHLP could not be audited; (5) balances related to HUD’s loan guarantee programs were not reliable; and (6) HUD did not properly account for its property, plant, and equipment. These problems occurred because of continued weaknesses in HUD’s internal controls and a lack of communication between OCFO and the program offices. As a result, several financial statement line items were misstated or could not be audited as of September 30, 2016. Specifically, (1) CPD’s accrued grant liabilities estimates could not be audited; (2) HUD’s PIH prepayments and accounts receivable balances contained errors with an absolute value of approximately $476.2 million and $201.2 million, respectively, and accounts payable were understated by an unknown amount; (3) HUD’s expenses on its statement of net costs were overstated by $293.2 million; (4) loans receivable balances for EHLP could not be audited and were potentially misstated; (5) balances related to HUD’s loan guarantee programs were misstated by unknown amounts; and (6) HUD’s $297 million balance for property, plant, and equipment was not supported. Significant Reconciliations Were Not Completed in a Timely Manner Material differences between subsidiary ledgers and the general ledger were not resolved, and sufficient evidence to support financial statement line items was not maintained. Further, OCFO did not complete required cash reconciliations or intragovernmental reconciliations in a timely manner. In fiscal year 2016, HUD began using an FSSP for financial reporting but failed to define (1) roles and responsibilities between HUD and the FSSP, and (2) policies and procedures for completing key reconciliations of material financial statement line items. HUD’s policies and procedures were not effective. The lack of these internal controls increased the risk of a material misstatement occurring in the financial statements and the potential for material misstatements to be undetected by management. 12 CPD’s Formula Grant Accounting Did Not Comply With GAAP, Resulting in Misstatements on the Financial Statements CPD’s formula grant program accounting continued to depart from GAAP because of its use of the FIFO method 6 for committing and disbursing obligations. Since 2013, we have reported that the information system used, the Integrated Disbursement Information System (IDIS) Online, a grants management system, was not designed to comply with Federal financial management system requirements. Further, HUD’s plan to eliminate FIFO from IDIS Online was applied only to fiscal year 2015 and future grants and not to fiscal years 2014 and earlier. As a result, budget year grant obligation balances continued to be misstated, and disbursements made using an incorrect USSGL attribute resulted in additional misstatements. Although FIFO has been removed from fiscal year 2015 and forward grants, modifications to IDIS are necessary for the system to comply with the Federal Financial Management Improvement Act (FFMIA) and USSGL transaction records. The inability of IDIS Online to provide an audit trail of all financial events affected by the FIFO method prevented the financial effects of FIFO on HUD’s consolidated financial statements from being quantified. Further, because of the amount and pervasiveness of the funds susceptible to the FIFO method and the noncompliant internal control structure in IDIS Online, the combined statement of budgetary resources and the consolidated balance sheet were materially misstated. The effects of not removing the FIFO method retroactively will continue to have implications on future years’ financial statement audit opinions until the impact is assessed to be immaterial. HUD’s Financial Management System Weaknesses Continued in 2016 HUD’s financial system weaknesses remained a material weakness in fiscal year 2016 due to the combined impact of many deficiencies and limitations. While HUD took steps to modernize its financial management system through the transition of key financial management functions to an FSSP in 2016, it encountered significant challenges after implementation that had not been resolved as of September 30, 2016. HUD’s inability to modernize its legacy financial systems and the lack of an integrated financial management system resulted in a continued reliance on disparate, legacy financial systems with various limitations. Program offices compensated for system limitations by using less reliable manual processes to meet financial management needs. These system issues and limitations inhibited HUD’s ability to produce reliable, useful, and timely financial information. 6 The FASAB Handbook defines FIFO as a cost flow assumption. The first goods purchased or produced are assumed to be the first goods sold (FASAB Handbook, Version 13, appendix E, page 30, dated June 2014). In addition, the Financial Audit Manual states that the use of “first-in, first-out” or other arbitrary means to liquidate obligations based on outlays is not generally acceptable (GAO-PCIE Financial Audit Manual, Internal Control Phase, Budget Control Objectives, page 395, F-3). In the context of HUD’s use of this method, the first funds appropriated and allocated to the grantee are the first funds committed and disbursed, regardless of the source year in which grant funds were committed for the activity. 13 Material Asset Balances Related to Nonpooled Loans Were Not Auditable In fiscal year 2016, for the third consecutive year, Ginnie Mae could not bring its material asset balances related to its nonpooled loan assets into an auditable state. Therefore, we were unable to audit the $4.2 billion (net of allowance) in nonpooled loan assets reported in Ginnie Mae’s financial statements as of September 30, 2016. These assets related to (1) claims receivable, net ($709 million); (2) mortgage loans held for investment, net ($3.47 billion); (3) accrued interest receivable, net ($19 million); and (4) acquired property, net ($41 million). This condition occurred because Ginnie Mae lacked financial management systems capable of handling its loan- level transaction accounting requirements. Therefore, we were again unable to perform all of the audit procedures needed to obtain sufficient, appropriate evidence. As a result, we determined that our audit scope was insufficient to express an opinion on Ginnie Mae’s $4.2 billion in nonpooled loan assets as of September 30, 2016. Ginnie Mae’s Internal Controls Over Financial Reporting Continued To Have Weaknesses In fiscal year 2015, we reported that Ginnie Mae’s internal controls over financial reporting were not effective. This condition continued, and some new issues were identified in fiscal year 2016. These material weaknesses in internal controls were issues related to the (1) improper accounting for FHA’s reimbursable costs and accrued interest earned on nonpooled loans; (2) accounting for cash in transit; (3) revenue accrual accounting; and (4) several other accounting issues, such as advances, fixed assets, and financial statement note disclosures. The first three issues were repeat findings from prior years, and the last one was new in fiscal year 2016. These conditions occurred because of Ginnie Mae’s failure to ensure that (1) adequate monitoring and oversight of its accounting and reporting functions were in place and operating effectively and (2) accounting policies and procedures were developed, finalized, and appropriately implemented. As a result, the risk that material misstatements in Ginnie Mae’s financial statements would not be prevented or detected increased. The Allowance for Loan Loss Account Balances Were Unreliable In fiscal year 2016, we identified accounting issues related to Ginnie Mae’s allowance for loan loss accounts. Specifically, we noted that Ginnie Mae improperly (1) accounted for certain nonpooled loan accounting transactions in its allowance for loan loss accounts and (2) booked a provision for loan loss against a nonexisting asset account. Factors that contributed to these issues included (1) the delayed implementation of accounting policies and procedures related to the allowance accounts and (2) the lack of financial management systems capable of handling loan-level transactions. Due to a combination of all of these accounting issues, we determined the balance of the allowance for loan loss accounts reported in Ginnie Mae’s financial statements to be unreliable. 14 HUD’s and Ginnie Mae’s Financial Management Governance Was Ineffective 7 Overall, we determined that HUD’s financial management governance remained ineffective. Weaknesses in program and component internal control that impacted financial reporting were able to develop in part due to a lack of financial management governance processes that could detect or prevent significant program- and component-level internal control weaknesses. In fiscal year 2016, Ginnie Mae’s executive management began to address the financial management governance problems cited in our fiscal years 2015 and 2014 audit reports. While significant progress was made this year, more work is needed to fully address the issues cited in our report. Specifically, these problems included issues in (1) keeping Ginnie Mae OCFO’s operations fully functional; (2) ensuring that emerging risks affecting its financial management operations were identified, analyzed, and responded to appropriately and in a timely manner; (3) establishing adequate and appropriate accounting policies and procedures and accounting systems; and (4) implementing an effective entitywide governance of the models used to generate accounting estimates for financial reporting. Some of these conditions continued because the implementation of the corrective action plans took longer than anticipated. This issue again contributed to Ginnie Mae’s inability to produce auditable financial statements for the third consecutive fiscal year. HUD’s financial management governance remained ineffective during 2016. HUD’s transition to an FSSP for financial management services was punctuated by operational issues that were exacerbated by a lack of mature financial management governance practices. Additionally, as we have reported in prior-year audits, HUD did not have reliable financial information for reporting and continued using its outdated legacy financial systems. Weaknesses in program and component internal control that impacted financial reporting were able to develop in part due to a lack of financial management governance processes. As a result, there were multiple deficiencies in HUD’s internal controls over financial reporting, resulting in misstatements on the financial statements and noncompliance with laws and regulations. Cash Flow Modeling Errors Were Not Detected In fiscal years 2014 and 2015, FHA home equity conversion mortgage (HECM) net loans receivable and liability for loan guarantee were not reported in accordance with GAAP. Specifically, FHA did not estimate its property maintenance and operating management assumption expense rate based on actual historical payments. This condition occurred because FHA failed to isolate the accrued expenses in its input data in modeling its maintenance and operating expense rate management assumption. Additionally, FHA failed to adequately review significant changes observed in its maintenance and operating expense input data until 2016. This failure caused an overstatement of FHA’s loan guaranty liability and an understatement of net loans receivable and 7 This was classified as a material weakness, based on the findings on financial management governance reported in Audit Report 2017-FO-0003, Additional Details To Supplement Our Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Financial Statement Audit, and Audit Report 2017-FO-0001, Audit of the Government National Mortgage Association’s Fiscal Years 2016 and 2015 (Restated) Financial Statements. 15 related foreclosed property line items in fiscal years 2014 and 2015. According to FHA, the overstatement of the liability account and understatement of the asset account was $833 million and $540 million, respectively in fiscal year 2015, and the overstatement of the liability account and understatement of the asset account was $830 million and $542 million respectively in fiscal year 2014. FHA’s Controls Over Financial Reporting Related to Budgetary Resources Had Weaknesses In fiscal year 2016, we identified financial reporting control deficiencies related to FHA’s monitoring of its budgetary resources. Specifically, we found that errors were not prevented or detected in a timely manner. These errors were related to the (1) discrepancies identified between proprietary and budgetary accounts and (2) system-generated accounting report used for financial reporting. Additionally, FHA’s monitoring of its unliquidated obligation balances was not effective. We attributed these conditions to FHA’s ineffective monitoring and processing controls. As a result, errors with an absolute amount totaling $680.2 million were not prevented or detected in a timely manner. Finally, FHA missed the opportunity to recapture $276.5 million in invalid obligations. Significant Deficiencies A significant deficiency is a deficiency or combination of deficiencies in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. We determined that the following deficiencies met the definition of a significant deficiency. Weaknesses in HUD’s Administrative Control of Funds System Continued We have reported on HUD’s administrative control of funds in our audit reports and management letters since fiscal year 2005. HUD continued to not have a fully implemented and complete administrative control of funds system that provided oversight of both obligations and disbursements. Our review noted instances in which (1) the Office of Multifamily Housing Programs did not follow HUD’s administrative control of funds; (2) funds control plans were out of date or did not reflect the controls and procedures in place with the transition to an FSSP; (3) program codes were not included in funds control plans and funds control documentation; and (4) OCFO staff processed accounting changes without proper review, approval, and sufficient supporting documentation. These conditions existed because of (1) decisions made by HUD OCFO, (2) failures by HUD’s allotment holders to update their funds control plans and notify OCFO of changes in their obligation process before implementation, (3) a lack of compliance reviews in the current year, and (4) a lack of policies and procedures requiring documentation of system accounting changes. As a result, HUD could not ensure that its obligations and disbursements were within authorized budget limits and complied with the Antideficiency Act. HUD Continued To Report Significant Amounts of Invalid Obligations Deficiencies in HUD’s process for monitoring its unliquidated obligations and deobligating balances tied to invalid obligations continued. Specifically, some program offices did not complete their obligation reviews in a timely manner, and we discovered $204.4 million in invalid obligations not previously identified by HUD. We discovered another $93.4 million in inactive obligations, indicating potentially additional invalid obligations. We also discovered 16 $34.6 million in obligations that HUD determined needed to be closed out and deobligated during the fiscal year that remained on the books as of September 30, 2016. We attributed these deficiencies to ineffective monitoring efforts and the inability to promptly process contract closeouts. Lastly, we noted that, as of September 30, 2016, HUD had not implemented prior- year recommendations to deobligate $100.5 million in funds. As a result, HUD’s unpaid obligation balances on the statement of budgetary resources were potentially overstated by $432.9 million. HUD’s Computing Environment Controls Had Weaknesses HUD’s computing environment, data centers, networks, and servers provide critical support to all facets of its programs, mortgage insurance, financial management, and administrative operations. In fiscal year 2016, we audited application controls over the New Core Interface Solution, which exchanges data between the financial systems at ARC (Oracle Financials) and HUD. We found that some access controls within the New Core Interface Solution were not effective and some of the application security documentation was inaccurate. These weaknesses occurred because of limited resources to perform the required tasks. As a result, some contractors had inappropriate access to sensitive budget and general ledger financial transactions. Further, inaccurate security documentation could lead to inappropriate decisions. In addition, although HUD had taken action to address information system control weaknesses reported in prior years, several of those weaknesses remained. Without adequate general and application controls, there was no assurance that financial management applications and the data within them were adequately protected Ginnie Mae Did Not Provide Adequate Oversight To Ensure Compliance With Federal Regulations and Guidance Ginnie Mae did not provide adequate oversight of its pool processing agent for the Integrated Pool Management System (IPMS) to ensure that adequate controls over business processes complied with Federal regulations and guidance. Specifically, (1) IPMS does not have adequate controls that automatically track overrides in the system; (2) IPMS does not have automated controls to prevent a pool processor from making changes to the master data without prior approval; and (3) Ginnie Mae’s lacked policies and procedures for data management. These conditions occurred because Ginnie Mae did not have a policies for monitoring overrides and IPMS does not sufficiently track the use of overrides or generate a report that captures changes. As a result, Ginnie Mae’s data was susceptible to an increased risk of improper use of authority, which could cause financial harm to Ginnie Mae by attaching its guarantee to mortgage-backed securities. FHA’s Controls Related to Claims Had Weaknesses In fiscal year 2016, we found that (1) the designation of two A43C (Claims) system edits, which are used in processing claims, was inappropriate, and (2) FHA continued to have significant delay in billing noncompliant lenders for partial claims for which the promissory note was not provided within 60 days. The system edit issue occurred because FHA lacked periodic monitoring to ensure that the designation of the error codes was appropriate. The lack of alignment between FHA’s policy and the regulatory requirements and persistent delays in initiating the collection process for 17 noncompliant mortgages was a contributing factor to FHA’s not claiming amounts due in a timely manner. The system edit issue creates a significant vulnerability in FHA’s systems application controls, and its risk of improper payments is increased because FHA relied heavily on system edits to ensure that hundreds of thousands of single-family claim requests worth more than $15 billion in fiscal year 2016 were processed correctly. Additionally, delays in implementing the collection process for noncompliant mortgagees with unsupported partial claims caused unsupported partial claims to remain in the loans receivable inventory longer, which is neither a good cash management practice nor a good strategy to help improve the health of the Mutual Mortgage Insurance fund. Weaknesses in FHA’s Controls Over Model Governance FHA had not fully implemented an effective model risk management governance framework. Specifically, it had not finalized or implemented policies and procedures relating to (1) model documentation, (2) model assumption sensitivity analysis testing, and (3) data management and validation. This condition occurred because FHA had not made establishing a model governance framework a priority. FHA’s failure to fully implement a control mechanism, such as the model risk management governance framework, increased the risk of inconsistencies and errors in financial reporting occurring without being detected or prevented. Weaknesses Were Identified in Selected FHA Information Technology Systems Our review of the general and application controls over FHA’s Single Family Premium Collection System – Periodic (SFPCS-P) and Single Family Acquired Asset Management System (SAMS) found (1) weaknesses in SFPCS-P, which included the system’s being incorrectly classified as a low-impact system instead of a moderate-impact system; (2) that software products used by SFPCS- P were outdated; (3) that the interface reconciliation from HUD’s Single Family Insurance System (SFIS) to SFPCS-P was not sufficiently performed; (4) that SFPCS-P had not participated in HUD’s disaster recovery exercise for more than 4 years; (5) that segregation of duties for SFPCS-P developers was not effectively implemented; and (6) that SFPCS-P security documents contained inaccurate information. Additionally, we found (1) weaknesses in SAMS, which included that the interface reconciliations from SFIS to SAMS were not sufficiently performed and (2) least privilege and segregation of duties requirements were not fully implemented for SAMS users. We completed an additional review of the general and application controls over SFIS and the Claims system and determined that the information system control weaknesses previously identified in SFIS and Claims were being addressed. However, we found (1) weaknesses in Claims, which included inconsistencies in error code, and (2) that the configuration information and the history of system changes were not retained for more than 5 years. Further, we found (1) weaknesses in both SFIS and Claims systems, which included that application and user access controls were not effectively implemented or adequately managed, and (2) that management did not adequately implement effective application configuration management. We also found that HUD Application Release Tracking System documents for FHA applications were not processed and maintained properly. These conditions occurred because some application controls were not sufficient. As a result, the appropriate confidentiality, integrity, and availability of critical information may have been negatively impacted. In addition, the information used to provide input to the FHA financial statements could have been adversely affected. 18 Report on Compliance With Laws and Regulations In connection with our audit, we performed tests of HUD’s compliance with certain provisions of laws and regulations. The results of our tests disclosed five instances of noncompliance that are required to be reported in accordance with Government Auditing Standards, issued by the Comptroller General of the United States, or OMB Bulletin No. 15-02, Audit Requirements for Federal Financial Statements. However, the objective of our audit was not to provide an opinion on compliance with laws and regulations. Accordingly, we do not express such an opinion. HUD’s Financial Management Systems Did Not Comply With the Federal Financial Management Improvement Act In fiscal year 2016, we noted a number of instances of FFMIA noncompliance 8 within HUD’s financial management system. HUD’s continued noncompliance was due to New Core implementation challenges and a reliance on a number of legacy financial systems. HUD Continued To Not Comply With the HOME Investment Partnership Act HUD continued to not comply with section 218(g) of the HOME Investment Partnership Act (also known as the HOME Statute) regarding grant commitment requirements. HUD’s misinterpretation of the plain language in the Act, the implementation of the cumulative method and the FIFO technique, and the current recapture policies continued to result in HUD’s noncompliance with HOME Statute requirements. As a result, HUD continued to incorrectly permit some jurisdictions to retain, commit, and disburse HOME Investment Partnerships Program grant funds beyond the statutory deadline. HUD will continue to be noncompliant with related laws and regulations until the cumulative method is no longer used to determine whether grantees meet commitment deadlines required by the HOME Statute. Allowing grantees to disburse funds from commitments made outside the 24-month statutory period may have caused HUD to incur improper payments. HUD Did Not Comply With Treasury Financial Manual’s Rules on Cash Management or 2 CFR Part 200 Since the implementation of its cash management policies in fiscal year 2013, PIH has made significant progress toward compliance with Treasury Financial Manual rules on cash management. 9 However, despite considerable efforts by HUD’s Office of Housing Voucher Programs, PHAs maintained Federal cash in excess of their immediate disbursement need for extended periods. Specifically, Moving To Work program PHAs held between $432.4 million and $466.5 million for the majority of the fiscal year and even after offsets performed in August 8 Compliance with Section 803(a) elements of FFMIA include (1) system requirements, (2) accounting standards, and (3) ussgl at the transaction level. 9 Before fiscal year 2013, HUD provided housing assistance payments to its PHAs that far exceeded their need and did not have a process in place to offset excess funding. To address this problem, PIH implemented the following cash management polices: (1) determine future disbursement based on previous need, (2) perform quarterly cash reconciliations and offset excess funding as it is identified, and (3) offset amounts that accumulated before the implementation of these new processes. 19 and September 2016, held $212 million in excess of their immediate disbursement needs. Further, PHAs accumulated $168.3 million from January to June 2016 and most likely accumulated additional excess funds from July through September, none of which had been offset as of September 30, 2016. These conditions occurred because HUD lacked an automated system and real-time expense data needed to fully implement its cash management policies. Since PHAs maintained these funds in excess of immediate disbursement need for extended periods and were unable to quickly offset the funds against future disbursements, HUD did not comply with Treasury’s cash management regulations 10 or 2 CFR (Code of Federal Regulations) Part 200, 11 increasing the risk of funds being susceptible to fraud, waste, and abuse. HUD Did Not Comply With the Improper Payments Elimination and Recovery Act of 2010 Our Improper Payments Elimination and Recovery Act (IPERA) audit 12 found that HUD did not comply with IPERA in fiscal year 2015 because it did not conduct its annual risk assessment in accordance with OMB guidance or meet its annual improper payment reduction target. Specifically, HUD did not assess all low-risk programs on a 3-year cycle or consider all nine required risk factors, making the review incomplete and noncompliant with section 3(a)(3)(B) of IPERA. HUD also failed to meet or exceed the annual improper payment reduction targets for its high-priority program, Rental Housing Assistance Programs (RHAP), causing noncompliance with section 3(a)(3)(E) of IPERA. This is the third year in a row that HUD did not comply with IPERA. Additionally, we found information published in the agency financial report did not meet the reporting requirements of OMB Circular A-136, significant improper payments in HUD’s RHAP continued, and HUD’s improper payment estimate and methodology for RHAP continued to have deficiencies during fiscal year 2015. Ginnie Mae Did Not Comply With the Debt Collection Improvement Act of 1996 In fiscal year 2016, Ginnie Mae’s noncompliance with the Debt Collection Improvement Act (DCIA) of 1996 continued. Specifically, as reported in fiscal year 2015, Ginnie Mae had not remediated its practice of ensuring that all debt collection tools allowed by law had been considered before deciding to discharge certain uninsured mortgage debts owed to Ginnie Mae. This condition occurred because Ginnie Mae’s management continued to take the position that DCIA did not apply to Ginnie Mae; therefore, it did not need to comply with DCIA 10 Treasury Financial Manual, Vol. 1, Part 4A, Section 2045.10, Cash Advances Establishing Procedure for Cash Advances, section 3, states, “It is the responsibility of grantor agencies to monitor the cash management practices of their recipient organizations to ensure that Federal cash is not maintained by them in excess of immediate disbursing needs. Agencies must establish systems and procedures to assure that balances are maintained commensurate with immediate disbursing needs, excess balances are promptly returned to the Treasury; and advance funding arrangements with recipient organizations unwilling or unable to comply are terminated.” 11 Regulations at 2 CFR 200.305 state, “For non-Federal entities other than States, payments methods must minimize the time elapsing between the transfer of funds from the United States Treasury or the pass-through entity and the disbursement by the non-Federal entity.” The regulations further state, “Advance payments to a non-Federal entity must be limited to the minimum amounts needed and be timed to be in accordance with the actual, immediate cash requirements of the non-Federal entity in carrying out the purpose of the approved program or project.” 12 Audit Report 2016-FO-0005, Compliance With the Improper Payments Elimination and Recovery Act, issued May 13, 2016 20 requirements. As a result, Ginnie Mae may have missed opportunities to collect tens of millions of dollars in debts related to losses on its mortgage-backed securities program. Results of the Audit of FHA’s Financial Statements We performed a separate audit of FHA’s fiscal years 2016 and 2015 (restated) financial statements. Our report on FHA’s financial statements, 13 includes a qualified opinion on FHA’s financial statements, along with discussion of two material weaknesses and three significant deficiencies in internal controls. Results of the Audit of Ginnie Mae’s Financial Statements We performed a separate audit of Ginnie Mae’s fiscal years 2016 and 2015 (restated) financial statements. Our report on Ginnie Mae’s financial statements, 14 includes a disclaimer of opinion on these financial statements, along with discussion of four material weaknesses, one significant deficiency in internal control, and one instance of noncompliance with laws and regulations. Objectives, Scope, and Methodology As part of our audit, we considered HUD’s internal controls over financial reporting. We are not providing assurance on those internal controls. Therefore, we do not provide an opinion on internal controls. We conducted our audit in accordance with Government Auditing Standards and the requirements of OMB Bulletin 15-02. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We also tested HUD’s compliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements that could have a direct and material effect on the financial statements. However, our consideration of HUD’s internal controls and our testing of its compliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements were not designed to and did not provide sufficient evidence to allow us to express an opinion on such matters and would not necessarily disclose all matters that might be material weaknesses; significant deficiencies; or noncompliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements. Accordingly, we do not express an opinion on HUD’s internal controls or its compliance with laws, regulations, governmentwide policies, and provisions of contract and grant agreements. With respect to information presented in HUD’s “required supplementary stewardship information” and “required supplementary information” and management’s discussion and analysis presented in HUD’s fiscal year 2015 agency financial report, we performed limited testing procedures as required by AU-C 730, Required Supplementary Information. Our 13 Audit Report 2017-FO-0002, Audit of Federal Housing Administration Fiscal Years 2016 and 2015 (Restated) Financial Statements Audit, issued November 14, 2016, was incorporated into this report. 14 Audit Report 2017-FO-0001, Audit of the Government National Mortgage Association’s Fiscal Years 2016 and 2015 (Restated) Financial Statements, issued November 14, 2016, was incorporated into this report. 21 procedures were not designed to provide assurance, and, accordingly, we do not provide an opinion on such information. Because of the matters described in the Basis for Disclaimer of Opinion section above, we were not able to obtain sufficient, appropriate audit evidence to provide a basis for an audit opinion. Agency Comments and Our Evaluation We reviewed management’s response to the draft independent auditor’s report which can be found in its entirety in appendix A. We noted both points of agreement and differences of opinion. While we agree with OCFO that there is more work to do to remediate outstanding issues, we also noted management continues to minimize internal control weaknesses and overestimate progress. For example, this year, management disagreed with a number of preliminary assessments and OIG findings and recommendations that were identified and provided to OCFO early in the audit cycle. The primary basis of many of the disagreements cited OIG’s use of “best practice” standards or criteria that HUD believed was optional. HUD’s continued minimization and diminishment of issues throughout the course of the year resulted in inaction and a failure to escalate the need to remediate internal control weaknesses in a timely manner. Consequently, significant delays in the completion and delivery of final consolidated financial statements and accompanying notes occurred and as a result, OIG was compelled to issue a disclaimer of opinion on HUD’s 2016 and 2015 (Restated) consolidated financial statements with a primary basis that OIG was unable to audit them in their entirety due to their untimely delivery. Progress was made on two material weaknesses, and a third was not resolved, but instead, consolidated with other new findings identified during fiscal year 2016. However, two new material weaknesses were identified during the course of the year, one of which contributed to HUD’s inability to timely complete and deliver final consolidated financial statements and accompanying notes. This material weaknesses could have been identified and remediated by management early in the fiscal year, allowing for the detection and prevention of the errors and issues identified by OIG at third quarter and possibly ensuring timely delivery of final consolidated financial statements and accompanying notes. With respect to the FHA restatements performed, we are not taking exception to FHA’s reestimation process. At issue here is FHA’s failure to use best and accurate data available to FHA at that time in its cash flow modeling process. We have sufficient appropriate evidence to support that this control failure resulted in errors in the utilization of home equity conversion mortgage operations and maintenance cost data. This condition occurred because of a weak entitywide model governance structure and internal controls. The Department’s and Ginnie Mae’s ongoing joint efforts in mapping out a path forward on its nonpooled loan assets will bring them closer to a better state where it can potentially be ready for audit fiscal in year 2017. This report is intended for the information and use of the management of HUD, OMB, GAO, and Congress and is not intended to be and should not be used by anyone other than these specified 22 23 Appendixes Appendix A Auditee Comments 24 25 Appendix B Schedule of Questioned Costs and Funds To Be Put to Better Use Audit report Funds to be put to Unsupported 1/ better use 2/ number 2017-FO-0001 $248,016,624 2017-FO-0002 $55,350,830 276,567,940 2017-FO-0003 500,689,142 Totals 55,350,830 1,025,273,706 1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or activity when we cannot determine eligibility at the time of the audit. Unsupported costs require a decision by HUD program officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or clarification of departmental policies and procedures. 2/ 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. 26 Appendix C HUD’s Fiscal Years 2016 and 2015 (Restated) Consolidated Financial Statements and Notes 27 Financial Statements Introduction The principal financial statements have been prepared to report the financial position and results of operations of HUD, pursuant to the requirements of 31 U.S.C. 3515(b). While the statements have been prepared from HUD’s books and records in accordance with GAAP for Federal entities and the formats prescribed by OMB, the statements are in addition to the financial reports used to monitor and control budgetary resources, which are prepared from the same books and records. The statements should be read with the realization that they are for a component of the U.S. Government, a sovereign entity. The following financial statements are presented: The Consolidated Balance Sheet, as of September 30, 2016, and 2015, which presents those resources owned or managed by HUD that are available to provide future economic benefits (assets), amounts owed by HUD that will require payments from those resources or future resources (liabilities), and residual amounts retained by HUD comprising the difference (net position). The Consolidated Statement of Net Cost, which presents the net cost of HUD operations for the years ended September 30, 2016, and 2015. HUD’s net cost of operations includes the gross costs incurred by HUD less any exchange revenue earned from HUD activities. The Consolidated Statement of Changes in Net Position, which presents the change in HUD’s net position resulting from the net cost of HUD operations, budgetary financing sources other than exchange revenues, and other financing sources for the years ended September 30, 2016, and 2015. The Combined Statement of Budgetary Resources, which presents the budgetary resources available to HUD during FY 2016 and 2015, the status of these resources at September 30, 2016, and 2015, and the outlay of budgetary resources for the years ended September 30, 2016, and 2015. The Notes to the Financial Statements provide important disclosures and details related to information reported on the statements. 28 U.S. Department of Housing And Urban Development Consolidated Balance Sheet For The Period Ending September 2016 and 2015 (Dollars in Millions) 2016 2015 (Restated) Assets: Intragovernmental: Fund balance with Treasury (Note 4) $ 73,198 $ 94,691 Short-Term Investments ( Note 6) $ 15,954 $ 12,923 Long-Term Investments held to Maturity ( Note 6) 36,398 14,754 Accounts Receivable, Net (Note 7) 1 - Other Assets (Note 12) 43 9 Total Intragovernmental Assets $ 125,594 $ 122,377 Cash (Note 5) $ 60 $ 45 Investments (Note 6) 31 31 Accounts Receivable, Net (Note 7) 611 780 Direct Loan and Loan Guarantees, Net (Note 8) 19,476 14,965 Other Non-Credit Reform Loans (Note 9) 2,680 3,227 General Property, Plant, and Equipment (Note 10) 381 329 PIH Prepayments (Note 11) 380 672 Other Assets (Note 12) 53 45 Total Assets $ 149,266 $ 142,471 Liabilities: Intragovernmental Accounts payable (Note 13) $ 24 $ 16 Debt (Note 14) 31,002 27,150 Other Intragovernmental Liabilities (Note 17) 3,024 3,148 Total Intragovernmental Liabilities $ 34,050 $ 30,314 Accounts payable (Note 13) $ 1,006 $ 966 Accrued Grant Liabilities (Note 13) 2,663 2,388 Loan Guarantees (Note 8) (2,057) 13,473 Debt Held by the Public (Note 14) 8 8 Federal Employee and Veterans Benefits (Note 15) 64 69 Loss Reserves (Note 16) 3 - Other Governmental Liabilities (Note 17) 1,367 1,239 Total Liabilities $ 37,104 $ 48,457 Commitments and Contingencies (Note 19) $ 55 $ 55 Net Position: Unexpended appropriations - fund from dedicated collections (Note 20) $ (342) $ (305) Unexpended appropriations - other funds 47,257 51,420 Cumulative results of operations - funds from dedicated collections (Note 20) 22,655 21,417 Cumulative results of operations - other funds 42,592 21,482 Total Net Position $ 112,162 $ 94,014 Total Liabilities and Net Position $ 149,266 $ 142,471 The accompanying notes are an integral part of these statements 29 U.S. Department Of Housing And Urban Development Consolidated Statement Of Net Cost For The Period Ending September 2016 and 2015 (Dollars in Millions) 2016 2015 (Restated) COSTS Federal Housing Administration Gross Costs (Note 21) $ (17,758) $ (16,203) Less: Earned Revenues (1,218) (1,849) Net Program Costs (18,976) (18,052) (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes (18,976) (18,052) Government National Mortgage Association Gross Costs (Note 21) $ 432 $ (234) Less: Earned Revenues (1,646) (1,555) Net Program Costs (1,214) (1,789) (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes (1,214) (1,789) Section 8 Rental Assistance Gross Costs (Note 21) $ 30,653 $ 29,482 Less: Earned Revenues - - Net Program Costs 30,653 29,482 (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes 30,653 29,482 Public and Indian Housing Loans and Grants (PIH) Gross Costs (Note 21) $ 2,995 $ 2,835 Less: Earned Revenues 0 - Net Program Costs 2,995 2,835 (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes 2,995 2,835 Homeless Assistance Grants Gross Costs (Note 21) $ 1,957 $ 1,894 Less: Earned Revenues 5 (4) Net Program Costs 1,962 1,890 (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes 1,962 1,890 Housing for the Elderly and Disabled Gross Costs (Note 21) $ 974 $ 1,037 Less: Earned Revenues (109) (136) Net Program Costs 865 901 (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes 865 901 Community Development Block Grants (CDBG) Gross Costs (Note 21) $ 6,286 $ 7,567 Less: Earned Revenues - - Net Program Costs 6,286 7,567 (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes 6,286 7,567 HOME Gross Costs (Note 21) $ 1,167 $ 1,241 Less: Earned Revenues - - Net Program Costs 1,167 1,241 (Gain)/Loss on pension, ORB or OPEB Assumption Changes - - Net program costs including Assumption Changes 1,167 1,241 Other Gross Costs (Note 21) $ 6,351 $ 6,071 Less: Earned Revenues (37) (29) Net Program Costs 6,314 6,042 Net program costs including Assumption Changes 6,314 6,042 Costs Not Assigned to Programs 262 218 Less: Earned Revenues Not Attributed to Programs - - Consolidated Gross Costs (Note 21) $ 33,319 $ 33,908 Less: Earned Revenues (3,005) (3,573) Net Cost of Operations $ 30,314 $ 30,335 The accompanying notes are an integral part of these statements 30 U.S. Department Of Housing And Urban Development Consolidated Statement Of Changes In Net Position For The Period Ending September 2016 and 2015 (Dollars in Millions) 2016 2015 (Restated) Funds From Dedicated Funds From Dedicated Collections All Other Funds Total Collections All Other Funds Total CUMULATIVE RESULTS OF OPERATIONS: Beginning of Period $ 21,417 $ 20,646 $ 42,063 $ 19,621 $ 5,434 $ 25,055 Adjustments: Changes in Accounting Principles - - - - - - Corrections and Errors (5) 835 830 (3) - (3) Beginning Balance, As Adjusted $ 21,412 $ 21,481 $ 42,893 $ 19,618 $ 5,434 $ 25,052 BUDGETARY FINANCING SOURCES: Other Adjustments (Rescissions, etc.) $ (1) $ - $ (1) $ - $ - $ - Appropriations Used 89 54,372 54,461 115 52,878 52,993 Non-Exchange Revenue 5 201 206 3 - 3 Donations and Forfeitures of Cash/Equivalents - - - - - - Transfers In/Out Without Reimbursement - - - - - - Other Budgetary Financing Sources - - - - (0) (0) OTHER FINANCING SOURCES (NON-EXCHANGE): Donations and Forfeitures of Property $ - $ - $ - $ - $ - $ - Transfers-In/Out Without Reimbursement - - - - 0 0 Imputed Financing 1 158 159 - 65 65 Other 13 (2,170) (2,157) - (4,879) (4,879) - - - Total Financing Sources 107 52,560 52,667 119 48,063 48,182 Net Cost of Operations 1,136 (31,450) (30,314) 1,680 (32,015) (30,335) Net Change 1,243 21,111 22,354 1,799 16,048 17,847 CUMULATIVE RESULTS OF OPERATIONS $ 22,655 $ 42,592 $ 65,247 $ 21,417 $ 21,482 $ 42,899 UNEXPENDED APPROPRIATIONS: Beginning of Period $ (320) $ 51,435 $ 51,115 $ (221) $ 56,442 $ 56,221 Adjustments: - - - Changes in Accounting Principles - - - - - - Corrections and Errors 14 (15) (1) - 574 574 Beginning Balance, As Adjusted $ (306) $ 51,420 $ 51,114 $ (221) $ 57,016 $ 56,795 BUDGETARY FINANCING SOURCES: Appropriations Received $ - $ 51,088 $ 51,088 $ - $ 47,639 $ 47,639 Appropriations Transferred-In/Out 80 (80) - 55 (56) 0 Other Adjustments (Rescissions, etc.) (27) (799) (826) (24) (301) (325) Appropriations Used (89) (54,372) (54,461) (115) (52,878) (52,994) Total Budgetary Financing Sources $ (36) $ (4,163) $ (4,200) $ (84) $ (5,596) $ (5,680) TOTAL UNEXPENDED APPROPRIATIONS $ (342) $ 47,257 $ 46,915 $ (305) $ 51,420 $ 51,115 NET POSITION $ 22,313 $ 89,849 $ 112,162 $ 21,112 $ 72,902 $ 94,014 The accompanying notes are an integral part of these statements 31 U.S. Department Of Housing And Urban Development Combined Statement Of Budgetary Resources For The Period Ending September 2016 and 2015 (Dollars in Millions) 2016 2015 (Restated) Non Budgetary Credit Non Budgetary Credit Program Financing Program Financing Budgetary Accounts Budgetary Accounts Budgetary Resources: Unobligated Balance Brought Forward, October 1 $ 44,260 $ 35,616 $ 34,729 $ 49,760 Adjustments to Unobligated Balance Brought Forward, October 1 7 (3) (13) - Unobligated Balance Brought Forward, Oct 1, As Adjusted 44,267 35,613 34,716 49,760 Recoveries of Prior Year Unpaid Obligations 1,039 463 716 397 Other Changes in Unobligated Balance (1,089) (0) (708) - Unobligated Balance From Prior Year Budget Authority, Net 44,217 36,076 34,724 50,157 Appropriations (discretionary and mandatory) 51,256 - 47,458 - Borrowing Authority (discretionary and mandatory) - 13,078 - 12,146 Contract Authority (discretionary and mandatory) - - - - Spending Authority From Offsetting Collections 28,705 22,657 26,158 28,452 Total Budgetary Resources $ 124,178 $ 71,811 $ 108,340 $ 90,755 Status of Budgetary Resources: Obligations Incurred Direct $ 55,328 $ 51,020 $ 63,700 $ 49,732 Reimbursable 214 3,613 249 5,538 Subtotal $ 55,542 $ 54,633 $ 63,949 $ 55,270 Unobligated Balances, End of Year Apportioned $ 12,148 $ 5,776 $ 13,115 $ 4,479 Exempt From Apportionment - - - - Unapportioned 55,639 11,402 31,275 31,007 Unexpired unobligated balance, end of year $ 67,787 $ 17,178 $ 44,391 $ 35,485 Expired unobligated balance, end of year 849 - - - Total Unobligated Balance, End of Year $ 68,636 $ 17,178 $ 44,391 $ 35,485 Total Status of Budgetary Resources $ 124,178 $ 71,811 $ 108,340 $ 90,755 Change in Obligated Balance Unpaid Obligations: Unpaid Obligations, Brought Forward, October 1 $ 39,303 $ 2,781 $ 41,087 $ 2,511 Adjustment to Unpaid Obligations, Start of Year (8) 3 13 - Obligations Incurred 55,543 54,633 63,950 55,271 Outlays (gross) (57,520) (54,048) (65,009) (54,627) Actual Transfers, Unpaid Obligations - - - - Recoveries of Prior Year Unpaid Obligations (1,039) (463) (716) (397) Unpaid Obligations, End of Year (gross) $ 36,279 $ 2,906 $ 39,325 $ 2,758 Uncollected Payments: Uncollected Payments, Fed Sources, Brought Forward, Oct 1 $ (18) $ (56) $ (12) $ (53) Adjustment to Uncollected Payments, Fed Sources, Start of Year - - - - Change in Uncollected Customer Payments, Fed Sources (23) 5 (6) 1 Actual Transfers, Uncollected Payments, Fed sources - - - - Uncollected Payments, Fed sources, End of Year $ (41) $ (51) $ (18) $ (52) Memorandum (non-add) Entries: Obligated Balance, Start of Year $ 39,277 $ 2,728 $ 41,088 $ 2,458 Obligated Balance, End of Year $ 36,238 $ 2,855 $ 39,307 $ 2,706 Budget Authority and Outlays, Net: Budget Authority, Gross (discretionary and mandatory) $ 79,961 $ 35,735 $ 73,615 $ 40,598 Actual Offsetting Collections (discretionary and mandatory) (28,825) (31,889) (26,642) (41,108) Change in Uncollected Customer Payments from Fed sources (discretionary and mandatory) (23) 5 (6) 1 Recoveries of prior year paid obligations (discretionary and mandatory) 28 - - - Anticipated Offsetting Collections (discretionary and mandatory) - - - - Budget Authority, Net (discretionary and mandatory) $ 51,141 $ 3,851 46,967 (509) Outlays, Gross (discretionary and mandatory) $ 57,520 $ 54,048 $ 65,009 $ 54,627 Actual Offsetting Collections (discretionary and mandatory) (28,825) (31,889) (26,639) (41,108) Outlays, Net (discretionary and mandatory) $ 28,695 $ 22,159 $ 38,370 $ 13,519 Distributed Offsetting Receipts (2,302) - (2,844) - Agency Outlays, Net (discretionary and mandatory) $ 26,393 $ 22,159 $ 35,526 $ 13,519 The accompanying notes are an integral part of these statements 32 Notes to Financial Statements September 30, 2016 and 2015 Note 1: Entity and Mission HUD was created in 1965 to (1) provide housing subsidies for low and moderate income families, (2) provide grants to states and communities for community development activities, (3) provide direct loans and capital advances for construction and rehabilitation of housing projects for the elderly and persons with disabilities, and (4) promote and enforce fair housing and equal housing opportunity. In addition, HUD insures mortgages for single family and multifamily dwellings; insures loans for home improvements and manufactured homes; and facilitates financing for the purchase or refinancing of millions of American homes. HUD’s major programs are as follows: The Federal Housing Administration (FHA) administers active mortgage insurance programs which are designed to make mortgage financing more accessible to the home-buying public and thereby to develop affordable housing. FHA insures private lenders against loss on mortgages which finance single family homes, multifamily projects, health care facilities, property improvements, and manufactured homes. The Government National Mortgage Association (Ginnie Mae) guarantees the timely payment of principal and interest on Mortgage-Backed Securities (MBS) issued by approved private mortgage institutions and backed by pools of mortgages insured or guaranteed by FHA, the Department of Agriculture (USDA), the Department of Veterans Affairs (VA), and the HUD Office of Public and Indian Housing (PIH). The Section 8 Rental Assistance programs assist low- and very low-income families in obtaining decent and safe rental housing. HUD makes up the difference between what a low- and very low-income family can afford and the approved rent for an adequate housing unit funded by the Housing Choice Voucher (HCV) Program. The Low Rent Public Housing Grants program provides grants to Public Housing Agencies (PHAs) and Tribally Designated Housing Entities (TDHEs) for construction and rehabilitation of low-rent housing. This program is a continuation of the Low Rent Public Housing Loan program which pays principal and interest on long-term loans made to PHAs and TDHEs for construction and rehabilitation of low-rent housing. The Homeless Assistance Grants program provides grants to localities to implement innovative approaches to address the diverse facets of homelessness. The grants provide funds for the Emergency Solutions Grant and Continuum of Care which award funds through formula and competitive processes. 33 The Section 202/811 Supportive Housing for the Elderly and Persons with Disabilities programs provided 40-year loans to nonprofit organizations sponsoring rental housing for the elderly or disabled. During FY 1992, the program was converted to a grant program. The grant program provides capital for long-term supportive housing for the elderly (Section 202) and the disabled (Section 811). The Community Development Block Grant (CDBG) programs provide funds for metropolitan cities, urban counties, and other communities to use for neighborhood revitalization, economic development, and improved community facilities and services. The United States Congress appropriated $17.5 billion in FY 2008 and $150 million in emergency supplemental appropriations in FY 2005 for the “Community Development Fund” for emergency expenses to respond to various disasters such as Hurricanes Katrina and Ike. Funds of $3 billion were disbursed as of September 30, 2016. Any remaining un-obligated balances remain available until expended. The Home Investments Partnerships program provides grants to states, local governments, and Indian tribes to implement local housing strategies designed to increase home ownership and affordable housing opportunities for low- and very low-income families. Other Programs not included above consist of other smaller programs which provide grant, subsidy funding, and direct loans to support other HUD objectives such as fair housing and equal opportunity, energy conservation, rehabilitation of housing units, removal of lead hazards, and for maintenance costs of PHAs and TDHEs housing projects. The programs provided 13 percent of HUD’s consolidated revenues and financing sources as of September 30, 2016. Note 2: Summary of Significant Accounting Policies A. Basis of Consolidation The accompanying principal financial statements include all Treasury Account Fund Symbols (TAFSs) designated to the Department of Housing and Urban Development, which consist of principal program funds, revolving funds, general funds and deposit funds. All inter-fund accounts receivable, accounts payable, transfers in and transfers out within these TAFSs have been eliminated to prepare the consolidated balance sheet, statement of net cost, and statement of changes in net position. The SBR is prepared on a combined basis as required by OMB Circular A-136, Financial Reporting Requirements. The Department’s FY 2016 financial statements do not include the accounts and transactions of one transfer appropriation, the Appalachian Regional Commission. Some laws require departments (parent) to allocate budget authority to another department (child). Allocation means a delegation, authorized by law, by one department of its authority to obligate and outlay funds to another department. HUD, the child account, receives budget authority and then obligates and outlays sums of up to the amount included in the allocation. As required by OMB Circular A-136, financial activity is in the parent account which is also accountable for and 34 maintains the responsibility for reporting while the child performs on behalf of the parent and controls how the funds are expended. Consequently, these balances are not included in HUD’s consolidated financial statements as specified by OMB Circular A-136. B. Basis of Accounting The Department’s FY 2016 financial statements include the accounts and transactions of FHA, Ginnie Mae, and its grant, subsidy and loan programs. The financial statements are presented in accordance with the OMB Circular No. A-136, Financial Reporting Requirements, and in conformance with the Federal Accounting Standards Advisory Board’s (FASAB) Statements of Federal Financial Accounting Standards (SFFAS). The financial statements are presented on the accrual and budgetary bases of accounting. Under the accrual method, HUD recognizes revenues when earned, and expenses when a liability is incurred, without regard to receipt or payment of cash. Generally, procedures for HUD’s major grant and subsidy programs require recipients to request periodic disbursement concurrent with incurring eligible costs. Budgetary accounting facilitates compliance with legal requirements on the use of Federal funds. The Department’s disbursement policy permits grantees/recipients to request funds to meet immediate cash needs to reimburse themselves for eligible incurred expenses and eligible expenses expected to be received and paid within three days or as subsidies payable in accordance with the Cash Management Improvement Act of 1990. Except for PIH programs, HUD’s disbursement of funds for these purposes are not considered advance payments but are viewed as sound cash management between the Department and the grantees. In the event it is determined that the grantee/recipient did not disburse the funds within the three-day time frame, interest earned must be returned to HUD and deposited into one of Treasury’s miscellaneous receipt accounts. C. Use of Estimates The preparation of the principal financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Amounts reported for net loans receivable and related foreclosed property and the loan guarantee liability represent the Department’s best estimates based on pertinent information available. To estimate the Allowance for Subsidy (AFS) associated with loans receivable and related foreclosed property and the Liability for Loan Guarantees (LLG), the Department uses cash flow model assumptions associated with the loan guarantees subject to the Federal Credit Reform Act of 1990 (FCRA), as described in Note 8, to estimate the cash flows associated with future loan 35 performance. To make reasonable projections of future loan performance, the Department develops assumptions based on historical data, current and forecasted program and economic assumptions. Certain programs have higher risks due to increased chances of fraudulent activities perpetrated against the Department. The Department accounts for these risks through the assumptions used in the liabilities for loan guarantee estimates. HUD develops the assumptions based on historical performance and management's judgments about future loan performance. The Department relies on estimates by PIH to determine the amount of funding needs for PHAs and Indian Housing Authorities (IHAs) under the PIH Housing Choice Voucher Program. Under the Department’s cash management program, PIH evaluates the program needs of PHAs/IHAs to minimize excess cash balances maintained by these entities. The Department implemented a cash management policy in calendar year 2012 over the voucher program given its significant funding levels and the excess cash balances which PHAs/IHAs had accumulated over the years. The cash reserves, referred to as restricted net position (RNP) are monitored by the Department and estimated by HUD on a recurring basis. The RNP balances are the basis for PIH prepayments recorded by the Department in its comparative financial statements for FY 2016 and FY 2015. In response to the OIG finding, HUD implemented a grant accrual policy on September 4, 2014, and restated its FY 2013 financial statements. The Department continues to refine its methodologies and the underlying assumptions used by program offices to develop the estimates. Described below are the methodologies used by our major program offices which are Community Planning and Development (CPD), PIH and the Office of Housing. CPD developed a statistical model for its grant programs based on recent historical data in the Integrated Disbursement Information System (IDIS). Utilizing activity type, funding and disbursement information in IDIS, CPD was able to extrapolate the relationship between accrued expenses over a specified period of time and when the services are generally billed to the government by the grantees. PIH administrative programs use disbursement data from the Department’s Electronic Line of Credit Control Systems (ELOCCS) and evaluated it for reasonableness based on unaudited data using the Financial Subsystem for Public Housing (FASS-PIH). The Office of Housing, similar to the PIH administered programs, utilizes disbursement data recorded in ELOCCS over a 12 month period and assumes a 30 day processing time from when the entity incurs eligible expenses and the associated drawdown of funds by the grantee occurs. D. Credit Reform Accounting The primary purpose of the Federal Credit Reform Act of 1990 (FCRA), which became effective on October 1, 1991, is to more accurately measure the cost of Federal credit programs and to 36 place the cost of such credit programs on a basis equivalent with other Federal spending. OMB Circular A-11, Preparation, Execution, and Submission of the Budget, Part 5, Federal Credit Programs defines loan guarantee as any guarantee, insurance or other pledge with respect to the payment of all or a part of the principal or interest on any debt obligation of a non-Federal borrower (Issuer) to a non-Federal lender (Investor). FHA practices Credit Reform accounting. The FCRA establishes the use of the program, financing, and general fund receipt accounts for loan guarantees committed and direct loans obligated after September 30, 1991, (Credit Reform). It also establishes the liquidating account for activity relating to any loan guarantees committed and direct loans obligated before October 1, 1991, (pre-Credit Reform). These accounts are classified as either budgetary or non-budgetary in the Combined Statements of Budgetary Resources. The budgetary accounts include the program, capital reserve and liquidating accounts. The non-budgetary accounts consist of the credit reform financing accounts. The program account is a budget account that receives and obligates appropriations to cover the subsidy cost of a direct loan or loan guarantee and disburses the subsidy cost to the financing account. The program account also receives appropriations for administrative expenses. The financing account is a non-budgetary account that records all of the cash flows resulting from Credit Reform direct loans or loan guarantees. It disburses loans, collects repayments and fees, makes claim payments, holds balances, borrows from U.S. Treasury, earns or pays interest, and receives the subsidy cost payment from the program account. The general fund receipt account is a budget account used for the receipt of amounts paid from the financing account when there are negative subsidies from the original estimate or a downward re-estimate. In most cases, the receipt account is a general fund receipt account and amounts are not earmarked for the credit program. They are available for appropriations only in the sense that all general fund receipts are available for appropriations. Any assets in this account are non-entity assets and are offset by intragovernmental liabilities. At the beginning of the following fiscal year, the fund balance in the general fund receipt account is transferred to the U.S. Treasury General Fund. The FHA general fund receipt accounts of the General Insurance (GI) and Special Risk Insurance (SRI) funds are in this category. In order to resolve the different requirements between the FCRA and the National Affordable Housing Act of 1990 (NAHA), OMB instructed FHA to create the capital reserve account to retain the Mutual Mortgage Insurance/Cooperative Management Housing Insurance (MMI/CMHI) negative subsidy and subsequent downward re-estimates. Specifically, the NAHA required that FHA’s MMI fund achieve a Capital Ratio of 2.0 percent by FY 2000. The Capital Ratio is defined as the ratio of economic net worth (current cash plus the present value of all future net cash flows) of the MMI fund to unamortized insurance in force (the unpaid balance of insured mortgages). Therefore, to ensure that the calculated capital ratio reflects the actual strength of the MMI fund, the resources of the capital reserve account, which are considered FHA assets, are included in the calculation of the MMI fund’s economic net worth. 37 The liquidating account is a budget account that records all cash flows to and from FHA resulting from pre-Credit Reform direct loans or loan guarantees. Liquidating account collections in any year are available only for obligations incurred during that year or to repay debt. Unobligated balances remaining in the GI and SRI liquidating funds at year-end are transferred to the U.S. Treasury’s General Fund. Consequently, in the event that resources in the GI/SRI liquidating account are otherwise insufficient to cover the payments for obligations or commitments, the FCRA provides the GI/SRI liquidating account with permanent indefinite authority to cover any resource shortages. E. Operating Revenue and Financing Sources HUD finances operations principally through appropriations, collection of premiums and fees on its FHA and Ginnie Mae programs, and interest income on its mortgage notes, loans, and investments portfolio. Appropriations for Grant and Subsidy Programs HUD receives both annual and multi-year appropriations and recognizes those appropriations as revenue when related program expenses are incurred. Accordingly, HUD recognizes grant- related revenue and related expenses as recipients perform under the contracts. HUD recognizes subsidy-related revenue and related expenses when the underlying assistance (e.g., provision of a Section 8 rental unit by a housing owner) is provided or upon disbursal of funds to PHAs. Ginnie Mae Fees Fees received for Ginnie Mae’s guaranty of MBS are recognized as earned. Commitment fees represent income that Ginnie Mae earns for providing approved issuers with authority to pool mortgages into Ginnie Mae MBS. The authority Ginnie Mae provides issuers expires 12 months from issuance for single family issuers and 24 months from issuance for multifamily issuers. Ginnie Mae receives commitment fees as issuers request commitment authority and recognizes the commitment fees as earned as issuers use their commitment authority, with the balance deferred until earned or expired, whichever occurs first. Fees from expired commitment authority are not returned to issuers. F. Appropriations and Moneys Received from Other HUD Programs The National Housing Act of 1990, as amended, provides for appropriations from Congress to finance the operations of GI and SRI funds. For Credit Reform loan guarantees, appropriations to the GI and SRI funds are provided at the beginning of each fiscal year to cover estimated losses on insured loans during the year. For pre-Credit Reform loan guarantees, FHA has permanent indefinite appropriation authority to finance any shortages of resources needed for operations. Monies received from other HUD programs, such as interest subsidies and rent supplements, are recorded as revenue for the liquidating accounts when services are rendered. Monies received 38 for the financing accounts are recorded as additions to the Liability for Loan Guarantee or the Allowance for Subsidy when collected. G. Investments HUD limits its investments, principally comprised of investments by FHA’s MMI/CMHI Fund and by Ginnie Mae, to non-marketable market-based Treasury interest-bearing obligations (i.e., investments not sold in public markets). The market value and interest rates established for such investments are the same as those for similar Treasury issues, which are publicly marketed. HUD’s investment decisions are limited to Treasury policy which: (1) only allows investment in Treasury notes, bills, and bonds; and (2) prohibits HUD from engaging in practices that result in “windfall” gains and profits, such as security trading and full scale restructuring of portfolios in order to take advantage of interest rate fluctuations. FHA’s normal policy is to hold investments in U.S. Government securities to maturity. However, in certain circumstances, FHA may have to liquidate its U.S. Government securities before maturity to finance claim payments. HUD reports investments in U.S. Government securities at amortized cost. Premiums or discounts are amortized into interest income over the term of the investment. HUD intends to hold investments to maturity, unless needed for operations. No provision is made to record unrealized gains or losses on these securities because, in the majority of cases, they are held to maturity. In connection with an Accelerated Claims Disposition Demonstration program (the 601 program), FHA transfers assigned mortgage notes to private sector entities in exchange for cash and equity interest. FHA uses the equity method of accounting to measure the value of its investments in these entities. Multifamily Risk Sharing Debentures [Section 542(c)] is a program available to lenders where the lender shares the risk in a property by issuing debentures for the claim amount paid by FHA on defaulted insured loans. H. Credit Program Receivables and Related Foreclosed Property HUD finances mortgages and provides loans to support construction and rehabilitation of low rent housing, principally for the elderly and disabled under the Section 202/811 program. Prior to April 1996, mortgages were also assigned to HUD through FHA claims settlement (i.e., Mortgage Notes Assigned (MNAs). Single family mortgages were assigned to FHA when the mortgagor defaulted due to certain “temporary hardship” conditions beyond the control of the mortgagor, and when, in management's judgment, it is likely that the mortgage could be brought current in the future. FHA’s loans receivable include MNAs, also described as Secretary-held notes, Purchase Money Mortgages (PMM) and notes related to partial claims. Under the requirements of the FCRA, PMM notes are considered to be direct loans while MNA notes are 39 considered to be defaulted guaranteed loans. The PMM loans are generated from the sales on credit of FHA’s foreclosed properties to qualified non-profit organizations. The MNA notes are created when FHA pays the lenders for claims on defaulted guaranteed loans and takes assignment of the defaulted loans for direct collections. In addition, multifamily mortgages are assigned to FHA when lenders file mortgage insurance claims for defaulted notes. Credit program receivables for direct loan programs and defaulted guaranteed loans assigned for direct collection are valued differently based on the direct loan obligation or loan guarantee commitment date. These valuations are in accordance with the FCRA and SFFAS No. 2, “Accounting for Direct Loans and Loan Guarantees,” as amended by SFFAS No. 18. Those obligated or committed on or after October 1, 1991, (post-Credit Reform) are valued at the net present value of expected cash flows from the related receivables. Credit program receivables resulting from obligations or commitments prior to October 1, 1991, (pre-Credit Reform) are recorded at the lower of cost or fair value (net realizable value). Fair value is estimated based on the prevailing market interest rates at the date of mortgage assignment. When fair value is less than cost, discounts are recorded and amortized to interest income over the remaining terms of the mortgages or upon sale of the mortgages. Interest is recognized as income when earned. However, when full collection of principal is considered doubtful, the accrual of interest income is suspended and receipts (both interest and principal) are recorded as collections of principal. Pre-Credit Reform loans are reported net of allowance for loss and any unamortized discount. The estimate for the allowance on credit program receivables is based on historical loss rates and recovery rates resulting from asset sales and property recovery rates, and net of cost of sales. Foreclosed property acquired as a result of defaults of loans obligated or loan guarantees committed on or after October 1, 1991, is valued at the net present value of the projected cash flows associated with the property. Foreclosed property acquired as a result in defaulted loans obligated or loan guarantees committed prior to 1992 is valued at net realizable value. The estimate for the allowance for loss related to the net realizable value of foreclosed property is based on historical loss rates and recovery rates resulting from property sales, and net of cost of sales. I. Borrowings As further discussed in Note 14, several of HUD’s programs have the authority to borrow funds from the U.S. Treasury for program operations. These borrowings, representing unpaid principal balances and future accrued interest, are reported as debt in HUD’s consolidated financial statements. The PIH Low Rent Public Housing Loan Program and the Housing for the Elderly or Handicapped fund were financed through borrowings from the Federal Financing Bank or the U.S. Treasury prior to the Department’s conversion of these programs to grant programs. The Department also borrowed funds from the private sector to assist in the construction and 40 rehabilitation of low rent housing projects under the PIH Low Rent Public Housing Loan Program. Repayments of these long-term borrowings have terms up to 40 years. In accordance with Credit Reform accounting, FHA also borrows from the U.S. Treasury when cash is needed in its financing accounts. Usually, the need for cash arises when FHA has to transfer the negative credit subsidy amount related to new loan disbursements, and existing loan modifications from the financing accounts to the general fund receipts account (for cases in GI/SRI funds) or the liquidating account (for cases in MMI/CMHI funds). In some instances, borrowings are also needed to transfer the credit subsidy related to downward re-estimates from the GI/SRI financing account to the GI/SRI receipt account or when available cash is less than claim payments due. J. Liability for Loan Guarantees The net potential future losses related to FHA’s central business of providing mortgage insurance are accounted for as Loan Guarantee Liability in the consolidated balance sheets. As required by SFFAS No. 2, the Loan Guarantee Liability includes the Credit Reform related Liabilities for Loan Guarantees (LLG) and the pre-Credit Reform Loan Loss Reserve (LLR). The LLG is calculated as the net present value of anticipated cash outflows for defaults, such as claim payments, premium refunds, property costs to maintain foreclosed properties less anticipated cash inflows such as premium receipts, proceeds from asset sales and principal and interest on Secretary-held notes. HUD records loss estimates for its single family LLR and multifamily LLR mortgage insurance programs operated through FHA. FHA records loss estimates for its single family programs to provide for anticipated losses incurred (e.g., claims on insured mortgages where defaults have taken place but claims have not yet been filed). Using the net cash flows (cash inflows less cash outflows), FHA computes an estimate based on conditional claim rates and loss experience data, and adjusts the estimates to incorporate management assumptions about current economic factors. FHA records loss estimates for its multifamily programs to provide for anticipated outflows less anticipated inflows. Using the net present value of claims less premiums, fees, and recoveries, FHA computes an estimate based on conditional claim rates, prepayment rates, and recovery assumptions based on historical experience. Ginnie Mae also establishes loss reserves to the extent management believes issuer defaults are probable and FHA, USDA, and PIH insurance or guarantees are insufficient to recoup Ginnie Mae expenditures. K. Full Cost Reporting Beginning in FY 1998, SFFAS No. 4, Managerial Cost Accounting Concepts and Standards for the Federal Government, required that full costing of program outputs be included in Federal agency financial statements. Full cost reporting includes direct, indirect, and inter-entity costs. For purposes of the consolidated department financial statements, HUD identified each 41 responsible segment’s share of the program costs or resources provided by HUD or other Federal agencies. L. Accrued Unfunded Leave and Federal Employees Compensation Act (FECA) Liabilities Annual leave and compensatory time are accrued as earned and the liability is reduced as leave is taken. The liability at year-end reflects cumulative leave earned but not taken, priced at current wage rates. Earned leave deferred to future periods is to be funded by future appropriations. To the extent that current or prior year appropriations are not available to fund annual leave earned but not taken, funding will be obtained from future financing sources. Sick leave and other types of leave are expensed as taken. M. Retirement Plans The majority of HUD’s employees participate in either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). FERS went into effect pursuant to Public Law 99-335 on January 1, 1987. Most employees hired after December 31, 1983, are automatically covered by FERS and Social Security. Employees hired before January 1, 1984, can elect to either join FERS and Social Security or remain in CSRS. HUD expenses its contributions to the retirement plans. A primary feature of FERS is that it offers a savings plan whereby HUD automatically contributes one percent of pay and matches any employee contribution up to five percent of an individual’s basic pay. Under CSRS, employees can contribute up to $18,000 of their pay to the savings plan, but there is no corresponding matching by HUD. Although HUD funds a portion of the benefits under FERS relating to its employees and makes the necessary withholdings from them, it has no liability for future payments to employees under these plans, nor does it report CSRS or FERS assets, accumulated plan benefits, or unfunded liabilities applicable to its employees’ retirement plans. N. Fiduciary Funds Ginnie Mae has immaterial fiduciary activities which involve the collection or receipt and subsequent disposition of cash in which non-Federal entities have an ownership interest. Fiduciary assets are not assets of Ginnie Mae or the Federal Government. The fiduciary assets held by Ginnie Mae include unclaimed MBS Certificate Holders payments and escrow funds held in trust. The amount of escrows reported by Ginnie Mae for FY 2016 and FY 2015 were $49 million and $89 million, respectively. O. Indian Housing Block Grant Program (IHBG) The Indian Housing Block Grant Program (IHBG) program is authorized under the Native American Housing Assistance and Self Determination Act of 1996 (NAHASDA). The IHBG is a highly unusual dual-purpose grant program. Its primary purpose is to provide formula grants 42 for a range of eligible affordable housing activities (section 202 of such Act) on Indian reservations and in other Indian areas. Under section 204(b) of such Act and implementing regulations, recipients are authorized to invest its IHBG block grant funds for up to five years “for the purposes of carrying out affordable housing activities in investment securities and other obligations as approved by the Secretary.” The investments are to be made only in securities guaranteed or insured by the United States, and income from these investments remain with the recipients for use on housing related activities. By the five-year deadline, recipients must either spend the funds on eligible affordable housing activities or return the funds to HUD. The control and ownership of the funds during the investment period resides with the grantees. IHBG recipients must meet certain criteria to be eligible to invest IHBG funds. Total invested IHBG funds were approximately $260 million as of September 30, 2016, and $273 million as of September 30, 2015. Note 3: Entity and Non-Entity Assets Non-entity assets consist of assets that belong to other entities but are included in the Department’s consolidated financial statements and are offset by various liabilities to accurately reflect HUD’s net position. The Department’s non-entity assets principally consist of: (1) U.S. deposit of negative credit subsidy in the GI/SRI general fund receipt account, (2) escrow monies collected by FHA that are either deposited at the U.S. Treasury or in minority-owned banks or invested in U.S. Treasury securities, and (3) cash remittances from Section 8 bond refunding deposited in the General Fund of the Treasury. HUD’s assets as of September 30, 2016 and 2015, were as follows (dollars in millions): Description 2016 2015 Entity Non-Entity Total Entity Non-Entity Total Intragovernmental Fund Balance with Treasury (Note 4) $ 73,145 $ 53 $ 73,198 $ 94,651 $ 40 $ 94,691 Short-Term Investments (Note 6) 15,954 - 15,954 12,923 - 12,923 Long-Term Investments Held-To-Maturity (Note 6) 36,398 - 36,398 14,754 - 14,754 Accounts Receivable, Net (Note 7) 1 - 1 - - - Other Assets (Note 12) 43 - 43 9 - 9 Total Intragovernmental Assets $ 125,541 $ 53 $ 125,594 $ 122,337 $ 40 $ 122,377 Cash and Other Monetary Assets (Note 5) 60 - 60 - 45 45 Investments (Note 6) 31 - 31 31 - 31 Accounts Receivable, Net (Note 7) 493 118 611 686 94 780 Loans Receivable and Related Foreclosed Property, Net (Note 8) 19,372 104 19,476 14,832 133 14,965 Other Non-Credit Reform Loans Receivable, Net (Note 9) 2,680 - 2,680 3,227 - 3,227 General Property, Plant and Equipment, Net (Note 10) 381 - 381 329 - 329 PIH Prepayments (Note 11) 380 - 380 672 - 672 Other Assets (Note 12) 53 - 53 8 37 45 Total Assets $ 148,991 $ 275 $ 149,266 $ 142,122 $ 349 $ 142,471 43 Note 4: Fund Balance with the U.S. Treasury The U.S. Treasury, which, in effect, maintains HUD’s bank accounts, processes substantially all of HUD’s receipts and disbursements. HUD’s fund balances with the U.S. Treasury as of September 30, 2016 and 2015, were as follows (dollars in millions): Description 2016 2015 Revolving Funds $ 22,311 $ 40,170 Appropriated Funds 49,794 53,241 Trust Funds 200 14 Other 893 1,266 Total - Fund Balance $ 73,198 $ 94,691 The Department’s Fund Balance with Treasury includes receipt accounts established under current Federal Credit Reform legislation and cash collections deposited in restricted accounts that cannot be used by HUD for its programmatic needs. These designated funds established by the Department of Treasury are classified as suspense and/or deposit funds and consist of accounts receivable balances due from the public. A Statement of Budgetary Resources is not prepared for these funds since any cash remittances received by the Department are not defined as a budgetary resource. In addition to fund balance, contract and investment authority are also a part of HUD’s funding sources. Contract authority permits an agency to incur obligations in advance of an appropriation, offsetting collections, or receipts to make outlays to liquidate the obligations. HUD has permanent indefinite contract authority. Since Federal securities are considered the equivalent of cash for budget purposes, investments in them are treated as a change in the mix of assets held, rather than as a purchase of assets. 44 HUD’s fund balances with the U.S. Treasury as reflected in the entity’s general ledger as of September 30, 2016 and 2015, were as follows (dollars in millions): S tatus of Resources - 2016 Obligated Unfilled S tatus of Unobligated Unobligated Not Yet Customer Total Other Total Description Available Unavailable Disbursed Orders Resources Fund Balance Authority Resources FHA $ 5,644 $ 48,486 $ 2,995 $ (35) $ 57,090 $ 20,820 $ 36,270 $ 57,090 Ginnie M ae 195 162 515 - 872 856 16 872 Section 8 Rental Assistance 763 166 8,902 - 9,831 9,831 - 9,831 PIH Loans and Grants 88 20 4,411 - 4,519 4,519 - 4,519 Homeless Assistance Grants 2,216 756 2,391 - 5,363 5,363 - 5,363 Section 202/811 226 411 1,642 (1) 2,278 2,278 - 2,278 CDBG 7,442 580 11,337 - 19,359 19,359 - 19,359 Home 231 34 2,965 - 3,230 3,230 - 3,230 Section 235/236 10 37 743 - 789 789 - 789 All Other 1,108 1,335 3,235 (57) 5,621 5,609 12 5,621 Total $ 17,923 $ 51,987 $ 39,136 $ (93) $ 108,952 $ 72,654 $ 36,298 $ 108,952 S tatus of Resources Covered by Fund Balance Non- Budgetary: S uspense, Obligated Unfilled Deposit and Unobligated Unobligated Not Yet Customer Fund Receipt Total Fund Description Available Unavailable Disbursed Orders Balance Accounts Balance FHA $ 5,644 $ 12,216 $ 2,995 $ (35) 20,820 $ - $ 20,820 Ginnie M ae 195 146 516 - 857 523 1,380 Section 8 Rental Assistance 763 166 8,902 - 9,831 - 9,831 PIH Loans and Grants 88 20 4,411 - 4,519 - 4,519 Homeless Assistance Grants 2,216 756 2,391 - 5,363 - 5,363 Section 202/811 226 411 1,642 (1) 2,278 - 2,278 CDBG 7,442 580 11,337 - 19,359 - 19,359 Home 231 34 2,965 - 3,230 - 3,230 Section 235/236 10 37 742 - 789 - 789 All Other 1,108 1,322 3,235 (57) 5,608 21 5,629 Total $ 17,923 $ 15,688 $ 39,136 $ (93) $ 72,654 $ 544 $ 73,198 S tatus of Resources Covered by Other Authority Obligated Unfilled Permanent Unobligated Unobligated Not Yet Customer Indefinite Investment Borrowing Description Available Unavailable Disbursed Orders Authority Authority Authority FHA $ - $ 36 $ - $ - $ - $ 36 $ - Ginnie M ae - 16 - - - 16 - Section 8 Rental Assistance - - - - - - - PIH Loans and Grants - - - - - - - Section 202/811 - - - - - - - Section 235/236 - - - - - - - All Other - 12 - - - - 12 Total $ - $ 64 $ - $ - $ - $ 52 $ 12 S tatus of Receipt Account Balances Breakdown of All Other Fund Fund Description Balance Description Balance FHA $ - All Other HUD suspense/deposit funds $ 21 Ginnie M ae 523 - Section 8 Rental Assistance - Total $ 21 All Other 21 Total $ 544 45 S tatus of Resources - 2015 Obligated Unfilled S tatus of Unobligated Unobligated Not Yet Customer Total Other Total Description Available Unavailable Disbursed Orders Resources Fund Balance Authority Resources FHA $ 3,565 $ 47,154 $ 3,050 $ (15) $ 53,754 $ 39,057 $ 14,697 $ 53,754 Ginnie M ae 6 14,066 584 - 14,656 1,733 12,923 14,656 Section 8 Rental Assistance 698 92 8,902 - 9,692 9,692 - 9,692 PIH Loans and Grants 113 43 4,711 - 4,867 4,867 - 4,867 Homeless Assistance Grants 2,086 539 2,536 - 5,161 5,161 - 5,161 Section 202/811 253 188 1,964 - 2,405 2,405 - 2,405 CDBG 9,021 8 12,495 - 21,524 21,524 - 21,524 Home 237 27 3,184 - 3,448 3,448 - 3,448 Section 235/236 31 32 951 - 1,014 1,014 - 1,014 All Other 594 1,175 3,665 (56) 5,378 5,366 12 5,378 Total $ 16,604 $ 63,324 $ 42,042 $ (71) $ 121,899 $ 94,267 $ 27,632 $ 121,899 S tatus of Resources Covered by Fund Balance Non- Budgetary: S uspense, Obligated Unfilled Deposit and Unobligated Unobligated Not Yet Customer Fund Receipt Total Fund Description Available Unavailable Disbursed Orders Balance Accounts Balance FHA $ 3,565 $ 32,457 $ 3,050 $ (15) $ 39,057 $ - $ 39,057 Ginnie M ae 6 1,143 584 - 1,733 409 2,142 Section 8 Rental Assistance 698 92 8,902 - 9,692 - 9,692 PIH Loans and Grants 113 43 4,711 - 4,867 - 4,867 Homeless Assistance Grants 2,086 539 2,536 - 5,161 - 5,161 Section 202/811 253 188 1,964 - 2,405 - 2,405 CDBG 9,021 8 12,495 - 21,524 - 21,524 Home 237 27 3,184 - 3,448 - 3,448 Section 235/236 31 32 951 - 1,014 - 1,014 All Other 594 1,163 3,665 (56) 5,366 15 5,381 Total $ 16,604 $ 35,692 $ 42,042 $ (71) $ 94,267 $ 424 $ 94,691 S tatus of Resources Covered by Other Authority Obligated Unfilled Permanent Unobligated Unobligated Not Yet Customer Indefinite Investment Borrowing Description Available Unavailable Disbursed Orders Authority Authority Authority FHA $ - $ 14,697 $ - $ - $ - $ 14,697 $ - Ginnie M ae - 12,923 - - - 12,923 - Section 8 Rental Assistance - - - - - - - PIH Loans and Grants - - - - - - - Section 202/811 - - - - - - - Section 235/236 - - - - - - - All Other - 12 - - - - 12 Total $ - $ 27,632 $ - $ - $ - $ 27,620 $ 12 S tatus of Receipt Account Balances Breakdown of All Other Fund Fund Description Balance Description Balance FHA $ - All Other HUD suspense/deposit funds $ 15 Ginnie M ae 409 - Section 8 Rental Assistance - Total $ 15 All Other 15 Total $ 424 An immaterial difference exists between HUD’s recorded Fund Balances with the U.S. Treasury and the U.S. Department of Treasury’s records. It is the Department’s practice to adjust its 46 records to agree with Treasury’s balances at the end of the fiscal year. The adjustments are reversed at the beginning of the following fiscal year. As the result of one our new internal controls, HUD initiated a project which quickly identified weaknesses in the validation of the general ledger and sub-ledger balances. Although a number of historical items have been resolved, efforts were still underway on September 30, 2016, to research, analyze, and resolve the remaining historical items. HUD has assessed the available information for the remaining items and determined there are no supportable financial statement impacts to record. Note 5: Cash and Other Monetary Assets Cash and other monetary assets consist of cash that is received by the Ginnie Mae’s Master Subservicers, but has not yet been transmitted to Ginnie Mae. As of September 30, 2016 and 2015, deposits in transit were $60 million and $45 million, respectively. Note 6: Investments The U.S. Government securities are non-marketable intra-governmental securities. Interest rates established by the U.S. Treasury as of September 30, 2016, were 0.11 percent. During FY 2016, the interest rate was 0.18 percent. The amortized cost and estimated market value of investments in debt securities as of September 30, 2016 and 2015, were as follows (dollars in millions): Amortized (Premium)/ Accrued Net Market Long-Term Cost Discount, Net Interest Investments Value FY 2016 $ 36,310 $ 54 $ 34 $ 36,398 $ 36,423 FY 2015 $ 14,731 $ 10 $ 13 $ 14,754 $ 14,764 Short-Term Cost Amortized Accrued Net Market FY 2016 $ 15,954 $ - $ - $ 15,954 $ 15,802 FY 2015 $ 12,923 $ - $ - $ 12,923 $ 12,923 Investments in Private-Sector Entities These investments in private-sector entities are the result of FHA’s participation in the Accelerated Claims Disposition Demonstration program and Risk Sharing Debentures as discussed in Note 2G. 47 The following table presents financial data on FHA’s investments in Risk Sharing Debentures as of September 30, 2016 and 2015 (dollars in millions): Share of Beginning Net Earnings or Return of Ending Balance Acquisition Losses Investment Redeemed Balance 2016 601 Program $ - $ - $ - $ - $ - $ - Risk Sharing Debentures 31 - - - - 31 Total $ 31 $ - $ - $ - $ - $ 31 2015 601 Program $ 41 $ 19 $ - $ - $ (29) $ 31 Risk Sharing Debentures - - - - - - Total $ 41 $ 19 $ - $ - $ (29) $ 31 Note 7: Accounts Receivable (Net) The Department’s accounts receivable represent Section 8 year-end settlements, claims to cash from the public, state and local authorities for bond refunding, Section 236 excess rental income, sustained audit findings, refunds of overpayment, FHA insurance premiums, and foreclosed property proceeds. A 100 percent allowance for loss is established for all delinquent accounts 90 days and over for bond refunding. The allowance for loss methodology adjusts the total delinquencies greater than 90 days by the effects of economic stress factors, which include likely payoffs, foreclosures, bankruptcies, and hardships of the project. Adjustments to the bond refunding allowance for loss account are done every quarter to ensure they are deemed to be necessary. For Section 236 excess rental income, the allowance for loss consists of 10 percent of the receivables with a repayment plan plus 95 percent of the receivables without a repayment plan. Adjustments to the excess rental income allowance for loss account are done biannually to ensure they are deemed necessary. Section 8 Settlements Prior to January 1, 2005, the Housing Choice Voucher (HCV) Program’s Section 8 subsidies were disbursed based on estimated amounts due under the contracts. At the end of each year, the actual amount due under the contracts was determined. The excess of subsidies paid to PHAs during the year over the actual amount due was reflected as an accounts receivable in the balance sheet. These receivable amounts were “collected” by offsetting such amounts with subsidies due to the PHAs in subsequent periods. On January 1, 2005, Congress changed the basis of the program funding from a “unit-based” process with program variables that affected the total annual Federal funding need, to a “budget-based” process that limits the Federal funding to 48 PHAs to a fixed amount. Under this “budget-based” process, a year-end settlement process to determine actual amounts due is no longer applicable. Effective January 1, 2012, PIH reinstated the year-end settlement process for the HCV Program in accordance with its cash management policies. However, as reported by the OIG’s Internal Control Report, the results of PIH’s cash reconciliation reviews are not reflected in the Department’s financial statements. The PIH reviews have not been completed on a timely basis and the required standard general ledger transactions have not been recorded in the Department’s accounting systems. Bond Refunding Many of the Section 8 projects constructed in the late 1970s and early 1980s were financed with tax exempt bonds with maturities ranging from 20 to 40 years. The related Section 8 contracts provided that the subsidies would be based on the difference between what tenants could pay pursuant to a formula and the total operating costs of the Section 8 project, including debt service. The high interest rates during the construction period resulted in high subsidies. When interest rates came down in the 1980s, HUD was interested in getting the bonds refunded. One method used to account for the savings when bonds are refunded (PHAs sell a new series of bonds at a lower interest rate, to liquidate the original bonds), is to continue to pay the original amount of the bond debt service to a trustee. The amounts paid in excess of the lower “refunded” debt service and any related financing costs, are considered savings. One-half of these savings are provided to the PHA, the remaining one-half is returned to HUD. As of September 30, 2016 and 2015, HUD was due $10 million and $14 million, respectively. Section 236 Excess Rental Income The Excess Rental Income receivable account represents the difference between the amounts that projects reported to HUD’s lockbox as owing (in use prior to August 2008) and the actual amount collected. On a monthly basis, projects financed under Section 236 of the National Housing Act must report the amount of rent collected in excess of basic rents and remit those funds to the Department. Unless written authorization is given by the Department to retain the excess rental income, the difference must be remitted to HUD. Generally, the individual amounts owing under Excess Rental Income receivables represent monthly reports remitted without payment. After 2008, any remittances owed by individuals are collected through PAY.GOV as well as the required HUD documents. Other Receivables Sustained audit costs include sustained audit findings, refunds of overpayment, FHA insurance premiums and foreclosed property proceeds due from the public. 49 The following shows accounts receivable as reflected in the Balance Sheet as of September 30, 2016 and 2015 (dollars in millions): 2016 2015 Gross Gross Accounts Allowance Accounts Allowance Description Receivable for Loss Total, Net Receivable for Loss Total, Net Intragovernmental $ 1 $ - $ 1 $ - $ - $ - Public Sustained Audit Costs $ 125 $ - $ 125 $ 158 $ - $ 158 Bond Refundings 10 - 10 13 - 13 Section 8 Settlements 59 - 59 17 - 17 Section 236 Excess Rental Income 5 (1) 4 5 (1) 4 Other Receivables: - - FHA 531 (288) 243 453 (322) 131 Ginnie Mae 294 (189) 105 649 (241) 408 Other Receivables 67 (2) 65 51 (2) 49 Total Accounts Receivable $ 1,092 $ (480) $ 612 $ 1,346 $ (566) $ 780 Note 8: Direct Loans and Loan Guarantees, Non-Federal Borrowers HUD reports direct loan obligations or loan guarantee commitments made prior to FY 1992 and the resulting direct loans or defaulted guaranteed loans, net of allowance for estimated uncollectible loans or estimated losses. The FHA insures Home Equity Conversion Mortgages (HECM), also known as reverse mortgages. These loans are used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the home is the borrower’s principal residence. The FHA also administers the HOPE for Homeowners (H4H) program. The program was established by Congress to help those at risk of default and foreclosure refinance into more affordable, sustainable loans. The allowance for loan losses for the Flexible Subsidy Fund and the Housing for the Elderly and Disabled Program is determined as follows: Flexible Subsidy Fund There are four parts to the calculation of allowance for loss: (1) loss rate for loans written-off, (2) loss rate for restructured loans, (3) loss rate for loans paid-off, and (4) loss rate for loans delinquent or without repayment activity for 30 years. Loss rates for parts 1 and 3 are based on actual historical data derived from the previous three years. The loss rates for parts 2 and 4 are provided by or agreed to by the Housing Office of Evaluation. 50 Housing for the Elderly and Disabled Program There are three parts to the calculation of allowance for loss: (1) loss rate for loans issued a Foreclosure Hearing Letter, (2) loss rate for the estimated number of foreclosures in the current year, and (3) loss rate for loans delinquent for more than 180 days. Loss rates for parts 1 and 2 are determined by actual historical data from the previous five years. Loss rate for part 3 is determined or approved by the Housing Office of Evaluation. Direct loan obligations or loan guarantee commitments made after FY 1991, and the resulting direct loans or defaulted guaranteed loans, are governed by the FCRA and are recorded as the net present value of the associated cash flows (i.e., interest rate differential, interest subsidies, estimated delinquencies and defaults, fee offsets, and other cash flows). The subsidy rates disclosed pertain only to the current year’s cohorts. These rates cannot be applied to the direct loans and guarantees of loans disbursed during the current reporting year to yield the subsidy expense. The subsidy expense for new loans and loan guarantees reported in the current year result from disbursement of loans from both current year cohorts and prior year(s) cohorts. The subsidy expense reported in the current year also includes modifications and re-estimates. The following is an analysis of loan receivables, loan guarantees, liability for loan guarantees, and the nature and amounts of the subsidy costs associated with the loans and loan guarantees for FY 2016 and FY 2015: A. List of HUD’s Direct Loan and/or Guarantee Programs: 1. FHA a) MMI/CMHI Direct Loan Program b) GI/SRI Direct Loan Program c) MMI/CMHI Loan Guarantee Program d) GI/SRI Loan Guarantee Program e) H4H Loan Guarantee Program f) HECM Program 2. Housing for the Elderly and Disabled 3. All Other a) CPD Revolving Fund b) Flexible Subsidy Fund c) Section 108 Loan Guarantees d) Indian Housing Loan Guarantee Fund 51 e) Loan Guarantee Recovery Fund f) Native Hawaiian Housing Loan Guarantee Fund g) Title VI Indian Housing Loan Guarantee Fund h) Green Retrofit Direct Loan Program i) Emergency Homeowners’ Loan Program B. Direct Loans Obligated Pre-1992 (Allowance for Loss Method) (dollars in millions): 2016 Value of Loans Assets Related Receivable, Interest Allowance for Foreclosed to Direct Direct Loan Programs Gross Receivable Loan Losses Property Loans, Net FHA a) MMI/CHMI Direct Loan Program $ - $ - $ - $ - $ - b) GI/SRI Direct Loan Program 8 13 (4) - 17 Housing for the Elderly and Disabled 1,167 14 (10) - 1,171 All Other - a) CPD Revolving Fund 5 - (5) 1 1 b) Flexible Subsidy Fund 405 57 (45) - 417 Total $ 1,585 $ 84 $ (64) $ 1 $ 1,606 2015 Value of Loans Assets Related Receivable, Interest Allowance for Foreclosed to Direct Direct Loan Programs Gross Receivable Loan Losses Property Loans, Net FHA a) MMI/CHMI Direct Loan Program $ - $ - $ - $ - $ - b) GI/SRI Direct Loan Program 14 12 (6) - 20 Housing for the Elderly and Disabled 1,412 15 (11) - 1,416 All Other - a) CPD Revolving Fund 5 - (5) 2 2 b) Flexible Subsidy Fund 428 72 (39) - 461 Total $ 1,859 $ 99 $ (61) $ 2 $ 1,899 52 C. Direct Loans Obligated Post-1991 (dollars in millions): 2016 Value of Loans Assets Receivable, Interest Allowance for Foreclosed Related to Direct Loan Programs Gross Receivable Loan Losses Property Direct Loans FHA a) MMI/CHMI Direct Loan Program $ - $ - $ (3) $ - $ (3) b) GI/SRI Direct Loan Program 554 1 27 - 582 All Other a) Green Retrofit Program $ 57 $ 1 $ (53) $ - $ 5 b) Emergency Homeowners' Loan Program 34 - $ (35) - (1) c) EHLP Receipt Account 104 - - - 104 Total $ 749 $ 2 $ (64) $ - $ 687 2015 Value of Loans Assets Receivable, Interest Allowance for Foreclosed Related to Direct Loan Programs Gross Receivable Loan Losses Property Direct Loans FHA a) MMI/CHMI Direct Loan Program $ - $ - $ (3) $ - $ (3) b) GI/SRI Direct Loan Program 103 - 34 - 137 All Other a) Green Retrofit Program $ 63 $ 1 $ (66) $ - $ (2) b) Emergency Homeowners' Loan Program 50 - (50) - - c) EHLP Receipt Account 133 - - - 133 Total $ 349 $ 1 $ (85) $ - $ 265 D. Total Amount of Direct Loans Disbursed (Post-1991) (dollars in millions): Current Prior Direct Loan Programs Year Year FHA Risk Sharing Program $ 452 $ 103 All Other a) Green Retrofit Program $ - $ - b) Emergency Homeowners' Loan Program - - Total $ 452 $ 103 53 E. Subsidy Expense for Direct Loans by Program and Component (dollars in millions): E1. Subsidy Expense for New Direct Loans Disbursed (dollars in millions): 2016 Interest Fees and Other Direct Loan Programs Differential Defaults Collections Other Total FHA Risk Sharing Program $ (68) $ 4 $ (9) $ 21 $ (52) All Other a) Green Retrofit Program $ - $ - $ - $ - $ - b) Emergency Homeowners' Loan Program - - - - - Total $ (68) $ 4 $ (9) $ 21 $ (52) 2015 Interest Fees and Other Direct Loan Programs Differential Defaults Collections Other Total FHA Risk Sharing Program $ (5) $ - $ (3) $ (1) $ (9) All Other a) Green Retrofit Program $ - $ - $ - $ - $ - b) Emergency Homeowners' Loan Program - - - - - Total $ (5) $ - $ (3) $ (1) $ (9) E2. Modifications and Re-estimates (dollars in millions): 2016 Total Interest Rate Technical Total Direct Loan Programs Modification Re-estimates Re-estimates Re-estimates FHA Risk Sharing Program $ - $ - $ - $ - All Other a) Green Retrofit Program $ - $ - $ - $ - b) Emergency Homeowners' Loan Program - - (13) (13) Total $ - $ - $ (13) $ (13) 2015 Total Interest Rate Technical Total Direct Loan Programs Modification Re-estimates Re-estimates Re-estimates FHA Risk Sharing Program $ - $ - $ - $ - All Other a) Green Retrofit Program $ - $ - $ - $ - b) Emergency Homeowners' Loan Program - - - - Total $ - $ - $ - $ - E3. Total Direct Loan Subsidy Expense (dollars in millions): Current Prior Direct Loan Programs Year Year FHA Risk Sharing Program $ (52) $ (8) All Other a) Green Retrofit Program $ - $ - b) Emergency Homeowners' Loan Program (13) - Total $ (65) $ (8) 54 F. Subsidy Rates for Direct Loans by Program and Component: Budget Subsidy Rates for Direct Loans 2016 Interest Fees and Other Direct Loan Programs Differential Defaults Collections Other Total FHA Risk Sharing Program 0.0% 2.6% (7.1%) 0.0% (4.5%) All Other a) Green Retrofit Program 41.0% 42.6% 0.0% (1.3%) 82.3% b) Emergency Homeowners' Loan Program 0.0% 0.0% 0.0% (97.7%) (97.7%) 2015 Interest Fees and Other Direct Loan Programs Differential Defaults Collections Other Total FHA Risk Sharing Program (6.1%) 0.5% (3.9%) (1.3%) (10.8%) All Other a) Green Retrofit Program 41.0% 42.7% 0.0% (1.3%) 82.3% b) Emergency Homeowners' Loan Program 0.0% 0.0% 0.0% 97.7% 97.7% G. Schedule for Reconciling Subsidy Cost Allowance Balances (Post-1991 Direct Loans) (dollars in millions): Beginning Balance, Changes, and Ending Balance FY 2016 FY 2015 Beginning balance of the subsidy cost allowance $ 85 $ 152 Add: subsidy expense for direct loans disbursed during the reporting years by component: - - a) Interest rate differential costs (68) (5) b) Default costs (net of recoveries) 4 - c) Fees and other collections (9) (3) d) Other subsidy costs 21 (1) Total of the above subsidy expense components (52) (9) Adjustments: a) Loan modifications - - b) Fees received 1 - c) Foreclosed properties acquired - - d) Loans written off (15) (31) e) Subsidy allowance amortization 82 1 f) Other - (4) Ending balance of the subsidy cost allowance before re-estimates 101 109 Add or subtract subsidy re-estimates by component: a) Interest rate re-estimate 2 - b) Technical/default re-estimate 33 (24) Total of the above re-estimate components 35 (24) Ending balance of the subsidy cost allowance $ 136 $ 85 55 H. Defaulted Guaranteed Loans from Pre-1992 Guarantees (Allowance for Loss Method) (dollars in millions): 2016 Defaulted Value of Assets Guaranteed Related to Loans Foreclosed Defaulted Receivable, Interest Allowance for Loan Property, Guaranteed Loans Gross Receivable and Interest Losses Net Receivable, Net FHA MMI/CMHI a) Single Family $ 21 $ - $ (5) $ 7 $ 23 b) Multi Family - - - - - c) HECM - - - - - GI/SRI a) Single Family $ - $ - $ (3) $ 9 $ 6 b) Multi Family 1,780 230 (817) 1 1,194 c) HECM 4 2 (5) (2) (1) Total $ 1,805 $ 232 $ (830) $ 15 $ 1,222 2015 Defaulted Value of Assets Guaranteed Related to Loans Foreclosed Defaulted Receivable, Interest Allowance for Loan Property, Guaranteed Loans Gross Receivable and Interest Losses Net Receivable, Net FHA MMI/CMHI a) Single Family $ 22 $ - $ (7) $ 7 $ 22 b) Multi Family - - - - - c) HECM - - - - - GI/SRI a) Single Family $ - $ - $ (4) $ 9 $ 5 b) Multi Family 1,946 234 (808) 1 1,373 c) HECM 4 2 (5) (2) (1) Total $ 1,972 $ 236 $ (824) $ 15 $ 1,399 56 I. Defaulted Guaranteed Loans from Post-1991 Guarantees (dollars in millions): 2016 Defaulted Value of Assets Guaranteed Allowance for Related to Loans Subsidy Cost Foreclosed Defaulted Receivable, Interest (Present Property, Guaranteed Loans Gross Receivable Value) Gross Receivable, Net FHA MMI/CMHI a) Single Family $ 10,320 $ 5 $ (7,327) $ 2,817 $ 5,815 b) Multi Family - - - - - c) HECM 4,472 2,350 (1,580) 36 5,278 GI/SRI a) Single Family $ 350 $ - $ (241) $ 73 $ 182 b) Multi Family 735 - (365) 1 371 c) HECM 3,594 1,830 (1,279) 132 4,277 H4H a) Single Family $ 5 $ - $ (5) $ 1 $ 1 All Other a) Indian Housing Loan Guarantee - - - 37 37 b) Native Hawaiian Housing Loan Guarantee - - - (1) (1) Total $ 19,476 $ 4,185 $ (10,797) $ 3,096 $ 15,960 2015 Defaulted Value of Assets Guaranteed Allowance for Related to Loans Subsidy Cost Foreclosed Defaulted Receivable, Interest (Present Property, Guaranteed Loans Gross Receivable Value) Gross Receivable, Net FHA MMI/CMHI a) Single Family $ 8,802 $ - $ (7,053) $ 3,130 $ 4,879 b) Multi Family - - - - - c) HECM 2,182 992 (790) 10 2,394 GI/SRI a) Single Family $ 292 $ 1 $ (233) $ 94 $ 154 b) Multi Family 655 - (272) 1 384 c) HECM 3,106 1,517 (1,172) 101 3,552 H4H a) Single Family $ 4 $ - $ 2 $ 1 $ 7 All Other a) Indian Housing Loan Guarantee - - - 31 31 b) Native Hawaiian Housing Loan Guarantee - - - (1) (1) Total $ 15,041 $ 2,510 $ (9,518) $ 3,367 $ 11,400 2016 2015 Total Credit Program Receivables and Related Foreclosed Property, Net $19,476 $14,965 57 J. Guaranteed Loans Outstanding (dollars in millions): J1. Guaranteed Loans Outstanding (dollars in millions): 2016 Outstanding Principal, Guaranteed Loans, Amount of Outstanding Loan Guarantee Programs Face Value Principal Guaranteed FHA Programs a) MMI/CMHI Funds $ 1,207,833 $ 1,097,974 b) GI/SRI Funds 127,737 115,318 c) H4H Progam 91 83 All Other 7,855 7,850 Total $ 1,343,516 $ 1,221,225 2015 Outstanding Principal, Guaranteed Loans, Amount of Outstanding Loan Guarantee Programs Face Value Principal Guaranteed FHA Programs a) MMI/CMHI Funds $ 1,168,560 $ 1,065,896 b) GI/SRI Funds 123,399 112,063 c) H4H Progam 98 92 All Other 7,321 7,317 Total $ 1,299,378 $ 1,185,368 J2. Home Equity Conversion Mortgage Loans Outstanding (dollars in millions): Cumulative 2016 Current Year Current Outstanding Maximun Potential Loan Guarantee Programs Endorsements Balance Liability FHA Programs $ 14,612 $ 104,648 $ 148,097 Cumulative 2015 Current Year Current Outstanding Maximun Potential Loan Guarantee Programs Endorsements Balance Liability FHA Programs $ 15,890 $ 105,471 $ 149,645 58 J3. New Guaranteed Loans Disbursed (dollars in millions): 2016 Outstanding Principal, Amount of Outstanding Loan Guarantee Programs Guaranteed Loans, Face Value Principal Guaranteed FHA Programs a) MMI/CMHI Funds $ 221,841 $ 219,866 b) GI/SRI Funds 12,224 12,168 c) H4H Program - - All Other 980 979 Total $ 235,045 $ 233,013 2015 Outstanding Principal, Amount of Outstanding Loan Guarantee Programs Guaranteed Loans, Face Value Principal Guaranteed FHA Programs a) MMI/CMHI Funds $ 213,125 $ 211,322 b) GI/SRI Funds 11,366 11,311 c) H4H Program - - All Other 1,008 1,008 Total $ 225,499 $ 223,641 K. Liability for Loan Guarantees (Estimated Future Default Claims, Pre-1992) (dollars in millions): 2016 Liabilities for Losses on Liabilities for Loan Pre-1992 Guarantees, Guarantees for Post- Estimated Future Default 1991 Guarantees Total Liabilities For Loan Loan Guarantee Programs Claims (Present Value) Guarantees FHA Programs $ - $ (2,360) $ (2,360) All Other - 303 303 Total $ - $ (2,057) $ (2,057) 2015 Liabilities for Losses on Liabilities for Loan Pre-1992 Guarantees, Guarantees for Post- Estimated Future Default 1991 Guarantees Total Liabilities For Loan Loan Guarantee Programs Claims (Present Value) Guarantees FHA Programs $ 7 $ 14,733 $ 14,740 All Other - 289 289 Total $ 7 $ 15,022 $ 15,029 59 L. Subsidy Expense for Post-1991 Guarantees: L1. Subsidy Expense for Loan Guarantees (dollars in millions): 2016 Endorsement Default Fees Other Subsidy Loan Guarantee Programs Amount Component Component Component Amount FHA a) MMI/CMHI Funds, Excluding HECM $ 221,841 $ 5,587 $ (16,461) $ 1,791 $ (9,083) b) MMI/CMHI Funds, HECM 14,612 844 (945) - (101) c) GI/SRI Funds 12,224 181 (661) - (480) d) H4H Program - - - - - All Other - 12 - - 12 Total $ 248,677 $ 6,624 $ (18,067) $ 1,791 $ (9,652) 2015 Endorsement Default Fees Other Subsidy Loan Guarantee Programs Amount Component Component Component Amount FHA a) MMI/CMHI Funds, Excluding HECM $ 213,125 $ 5,684 $ (18,706) $ - $ (13,022) b) MMI/CMHI Funds, HECM 15,890 991 (1,055) - (64) c) GI/SRI Funds 11,366 191 (703) - (512) d) H4H Program - - - - - All Other - 8 - - 8 Total $ 240,381 $ 6,874 $ (20,464) $ - $ (13,590) L2. Modification and Re-estimates (dollars in millions): 2016 Total Interest Rate Technical Total Loan Guarantee Programs Modifications Re-estimates Re-estimates Re-estimates FHA a) MMI/CMHI Funds $ - $ - $ (7,897) $ (7,897) b) GI/SRI Funds - - (225) (225) All Other - - (28) (28) Total $ - $ - $ (8,150) $ (8,150) 2015 Total Interest Rate Technical Total Loan Guarantee Programs Modifications Re-estimates Re-estimates Re-estimates FHA a) MMI/CMHI Funds $ - $ - $ (2,295) $ (2,295) b) GI/SRI Funds - - (1,026) (1,026) All Other - - (12) (12) Total $ - $ - $ (3,333) $ (3,333) 60 L3. Total Loan Guarantee Subsidy Expense (dollars in millions): Loan Guarantee Programs Current Year Prior Year FHA a) MMI/CMHI Funds $ (17,081) $ (15,380) b) GI/SRI Funds (704) (1,539) c) H4H Program - - All Other $ (17) $ (5) Total $ (17,802) $ (16,924) M. Subsidy Rates for Loan Guarantees by Programs and Component: Budget Subsidy Rates for Loan Guarantees for FY 2016 Cohorts Fees and Other Loan Guarantee Program Default Collections Total FHA Programs MMI/CMHI Single Family - Forward 2.3% (6.1%) (3.8%) Single Family - HECM 5.8% (6.5%) (0.7%) Single Family - Refinancing 10.0% (10.0%) 0.0% Multi Family - Section 213 0.0% 0.0% 0.0% GI/SRI Funds Apartments - NC/SC 2.4% (5.2%) (2.7%) Apartments - NC/SC04/01/2016 1.9% (4.3%) (2.4%) Apartments - Refinance 0.3% (5.0%) (4.7%) Apartments Refinance - 04/01/16 0.3% (3.9%) (3.6%) Healthcare MM - FHA Full Insurance - Health Care 4.0% (7.4%) (3.4%) MF- - Hospitals 3.2% (6.5%) (3.2%) H4H Programs Single Family - Section 257 0.0% 0.0% 0.0% All Other Programs CDBG, Section 108(b) 0.0% 0.0% 0.0% Loan Guarantee Recovery 50.0% 0.0% 50.0% Indian Housing (weighted average) 0.6% 0.0% 0.6% Native Hawaiian Housing 0.5% 0.0% 0.5% Title VI Indian Housing 11.5% 0.0% 11.5% 61 Budget Subsidy Rates for Loan Guarantees for FY 2015 Cohorts Fees and Other Loan Guarantee Program Default Collections Total FHA Programs MMI/CMHI Single Family - Forward 2.7% (9.9%) (7.2%) Single Family - HECM 6.2% (6.6%) (0.4%) Single Family - Refinancing 10.1% (10.1%) 0.0% Multi Family - Section 213 0.0% 0.0% 0.0% GI/SRI Multifamily Apartments 2.5% (6.2%) (3.7%) Apartments Refinance 0.3% (5.0%) (4.7%) Healthcare Residential Care 3.8% (8.0%) (4.2%) Hospitals 2.6% (7.1%) (4.5%) H4H Single Family - Section 257 0.0% 0.0% 0.0% All Other Programs CDBG, Section 108(b) 2.4% 0.0% 2.4% Loan Guarantee Recovery 50.0% 0.0% 50.0% Indian Housing (weighted average) 1.3% 0.0% 1.3% Native Hawaiian Housing 0.6% 0.0% 0.6% Title VI Indian Housing 11.2% 0.0% 11.2% 62 N. Schedule for Reconciling Loan Guarantee Liability Balances (Post-1991 Loan Guarantees) (dollars in millions): Beginning Balance, Changes, and Ending Balance 2016 2015 Beginning balance of the loan guarantee liability $ 15,571 $ 32,919 Add: subsidy expense for guaranteed loans disbursed during the reporting years by component: (a) Interest supplement costs - - (b) Default costs (net of recoveries) 6,623 6,875 (c) Fees and other collections (18,067) (20,465) (d) Othe subsidy costs 1,791 - Total of the above subsidy expense components $ (9,653) $ (13,590) Adjustments: (a) Loan guarantee modifications - - (b) Fees Received 14,029 13,288 (c) Interest supplemental paid - - (d) Foreclosed property and loans acquired 11,165 13,561 (e) Claim payments to lenders (22,445) (26,642) (f) Interest accumulation on the liability balance (177) 580 (g) Other 828 364 Ending balance of the subsidy cost allowance before re-estimates $ 9,318 $ 20,480 Add or Subtract subsidy re-estimates by component: (a) Interest rate re-estimate (3,549) - (b) Technical/default re-estimate (6,272) (3,877) (c) Adjustment of prior years credit subsidy re-estimates - (1,032) Total of the above re-estimate components (9,821) (4,909) Ending balance of the subsidy cost allowance $ (503) $ 15,571 Less: unrealized Ginnie Mae claims from defaulted loans $ (1,554) $ (2,098) Ending balance of the subsidy cost allowance $ (2,057) $ 13,473 O. Administrative Expenses (dollars in millions): Loan Guarantee Program 2016 2015 FHA $ 586 $ 557 All Other - Total $ 586 $ 557 63 Note 9: Other Non-Credit Reform Loans The following shows HUD’s Other Non-Credit Reform Loans Receivable as of September 30, 2016 and 2015 (dollars in millions): 2016 Allowance for Loan Losess Due Ginnie Mae Reported to Payment of Probable Claims Value of Assets Related to Description Balances by FHA Loans Mortgage Loans Held for Investment $ 3,471 $ (1,243) $ 2,228 Advances Against Defaulted Mortgage-Backed Security Pools, net 20 - 20 Properties Held for Sale, net 41 - 41 Foreclosed Property 595 (217) 378 Short Sale Claims Receivable 106 (93) 13 Total $ 4,233 $ (1,553) $ 2,680 2015 Allowance for Loan Losess Due Ginnie Mae Reported to Payment of Probable Claims Value of Assets Related to Description Balances by FHA Loans Mortgage Loans Held for Investment $ 4,362 $ (1,334) $ 3,028 Advances Against Defaulted Mortgage-Backed Security Pools, net 119 - 119 Properties Held for Sale, net 30 - 30 Foreclosed Property 769 (719) 50 Short Sale Claims Receivable 45 (45) - Total $ 5,325 $ (2,098) $ 3,227 Other Non-Credit Reform Loans consists of Ginnie Mae Advances Against Defaulted Mortgage- Backed Security Pools, Mortgage Loans Held for Investment, Short Sale Claims Receivable, and Foreclosed Property. Below is a description of each type of asset recorded by Ginnie Mae. Mortgage Loans Held for Investment (HFI) When a Ginnie Mae issuer defaults, Ginnie Mae is required to step into the role of the issuer and make the timely pass-through payments to investors, and subsequently, assumes the servicing rights and obligations of the issuer’s entire Ginnie Mae guaranteed, pooled loan portfolio of the defaulted issuer. Ginnie Mae utilizes the MSSs to service these portfolios. There are currently two MSSs for Single Family and one MSS for Manufactured Housing defaulted issuers. These MSSs currently service 100 percent of all non-pooled loans. In its role as servicer, Ginnie Mae assesses individual loans within its pooled portfolio to determine whether the loan must be purchased out of the pool as required by the Ginnie Mae MBS Guide. Ginnie Mae purchases mortgage loans out of the MBS pool when: A. Mortgage loans are uninsured by the FHA, USDA, VA or PIH B. Mortgage loans were previously insured but insurance is currently denied (collectively with A, referred to as uninsured mortgage loans) 64 Ginnie Mae has the option to purchase mortgage loans out of the MBS pool when: C. Mortgage loans are insured but are delinquent for more than 90 and 120 days based on management discretion for manufactured housing and single family loans, respectively. For the years ended September 30, 2016 and 2015, the majority of purchased mortgage loans were bought out of the pool due to borrower delinquency of more than three months. Ginnie Mae has the ability and the intent to hold these acquired loans for the foreseeable future or until maturity. Therefore, Ginnie Mae classifies the mortgage loans as HFI. The mortgage loans HFI are reported net of allowance for loan losses. Ginnie Mae evaluates the collectability of all purchased loans and assesses whether there is evidence of credit deterioration subsequent to the loan’s origination and if it is probable, at acquisition, that Ginnie Mae will be unable to collect all contractually required payments receivable. Ginnie Mae considers guarantees and insurance from FHA, USDA, VA, and PIH in determining whether it is probable that Ginnie Mae will collect all amounts due according to the contractual terms. For FHA insured loans, Ginnie Mae expects to collect the full amount of the unpaid principal balance and debenture rate interest (only for months allowed in the insuring agency’s timeline), when the insurer reimburses Ginnie Mae subsequent to filing a claim. As a result, these loans are accounted for under ASC Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. In accordance with ASC 310-20-30-5, these loans are recorded at the unpaid principal balance which is the amount Ginnie Mae pays to repurchase these loans. Accordingly, Ginnie Mae recognizes interest income on these loans on an accrual basis at the debenture rate for the number of months allowed under the insuring agency’s timeline. Ginnie Mae performs periodic and systematic reviews of its loan portfolios to identify credit risks and assess the overall collectability of the portfolios for the estimated uncollectible portion of the principal balance of the loan. As a part of this assessment, Ginnie Mae incorporates the probable recovery amount from mortgage insurance (e.g., FHA, USDA, VA, or PIH) based on established insurance rates. Additionally, Ginnie Mae reviews the delinquency of mortgage loans, industry benchmarks, as well as the established rates of insurance recoveries from insurers. Ginnie Mae records an allowance for the estimated uncollectible amount. The allowance for loss on mortgage loans HFI represents management’s estimate of probable credit losses inherent in Ginnie Mae’s mortgage loan portfolio. The allowance for loss on mortgage loans HFI is netted against the balance of mortgage loans HFI. Ginnie Mae records a charge-off as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in full satisfaction of a loan, such as the receipt of claims proceeds from an insuring agency or underlying collateral upon foreclosure. The fair value option was not elected by Ginnie Mae for any recognized loans on its balance sheet in 2016 and 2015. The fair value option allows certain financial assets, such as acquired 65 loans, to be reported at fair value (with unrealized gains and losses reported in the Statement of Revenues and Expenses). Ginnie Mae reserves the right to elect the fair value option for newly acquired loans in future periods. As the fair value option was not elected and Ginnie Mae has the ability and the intent to hold these acquired loans for the foreseeable future or until maturity, the mortgage loans were classified as loans HFI and reported at amortized cost (net of allowance for loan losses). Management is currently pursuing marketing activities to potentially sell loans currently recognized on Ginnie Mae’s balance sheet. Once a plan of sale is developed and loans are clearly identified for sale, Ginnie Mae will reclassify the applicable loans from HFI to HFS (held for sale). For loans which Ginnie Mae initially classifies as held for investment and subsequently transfers to HFS, those loans should be recognized at the lower of cost or fair value until sold. As of the year ended September 30, 2016 and 2015, Ginnie Mae has no loans classified as HFS. Please note that management is currently assessing current and historic loan accounting for potential restatement. Mortgage loans HFI, net as of September 30, 2016 and 2015, was $3.5 billion and $4.4 billion, respectively based on probable claims paid by FHA and recognized as an elimination in the Department’s financial statements. Advances against Defaulted Mortgage-Backed Security Pools Advances represent loan pass-through payments made to fulfill Ginnie Mae’s guaranty of timely principal and interest payments to MBS security holders. Per U.S. GAAP, Ginnie Mae is required to report advances net of an allowance to the extent that management believes that they will not be collected. The allowance is estimated based on historical loss experience of future collections from the borrowers, proceeds from the sale of the property, or recoveries from third- party insurers such as FHA, USDA, VA, and PIH. Once Ginnie Mae purchases the loans from the pools, the associated advances are reclassified to the appropriate asset class. The advances balance is $21 million in FY 2016 and $119 million in FY 2015. Properties Held for Sale, Net Properties held for sale represent assets for which Ginnie Mae has received the title of the underlying collateral (e.g. completely foreclosed upon and repossessed) and intends to sell the collateral. For instances in which Ginnie Mae does not convey the property to the insuring agency, Ginnie Mae holds the title until the property is sold. As the properties are available for immediate sale in their current condition and are actively marketed for sale, they are to be recorded at the fair value of the asset less the estimated cost to sell with subsequent declines in the fair value below the initial acquired property cost basis recorded through the use of a valuation allowance. The Properties Held for Sale balance is one of the line items for which 66 Ginnie Mae Management is currently performing an assessment related to the recognition and measurement as compared to US GAAP requirements. Currently, Ginnie Mae does not have access to broker price opinions or other fair value data for acquired properties. A further assessment of data availability is currently being performed. Properties Held for Sale, net, as of September 30, 2016 and 2015, was $41 million and $30 million, respectively. Foreclosed Property Ginnie Mae records foreclosed property when a MSS receives marketable title to a property which has completed the foreclosure process in the respective state. The asset is measured as the principal and interest of a loan which is in the process of being conveyed to an insuring agency, net of an allowance. These assets are conveyed to the appropriate insuring agency within six months. Foreclosed property has previously been placed on nonaccrual status after the loan was repurchased from a pool. These properties differ from properties held for sale because they will be conveyed to an insuring agency, and not sold by the MSS. The allowance for foreclosed property is estimated based on actual and expected recovery experience including expected recoveries from FHA, USDA, VA, and PIH. The aggregate of the foreclosed property and the allowance for foreclosed property is the amount that Ginnie Mae determines to be collectible. Ginnie Mae records a charge-off as a reduction to the allowance for loan losses when losses are confirmed through the receipt of assets in full satisfaction of a loan, such as the receipt of claims proceeds from an insuring agency. Management is currently assessing current and historic accounting practices for potential restatement. Foreclosed Property, net as of September 30, 2016, was $596 million, and, net as of September 30, 2015, was $769 million. Short Sale Claims Receivable As an alternative to foreclosure, a property may be sold for its appraised value even if the sale results in a short sale where the proceeds are not sufficient to pay off the mortgage. Ginnie Mae’s MSSs analyze mortgage loans HFI for factors such as delinquency, appraised value of the loan, and market in locale of the loan to identify loans that may be short sale eligible. These transactions are analyzed and approved by Ginnie Mae’s MBS program office. For FHA insured loans, for which the underlying property was sold in a short sale, the FHA typically pays Ginnie Mae the difference between the proceeds received from the sale and the total contractual amount of the mortgage loan and interest at the debenture rate. Hence, Ginnie Mae does not incur any losses as a result of the short sale of an FHA insured loan. Ginnie Mae records a short sale claims receivable while it awaits repayment of this amount from the insurer. For short sales claims receivable for which Ginnie Mae believes that collection is not probable, Ginnie Mae records an allowance for short sales claims receivable. The allowance for short sales claims receivable is estimated based on actual and expected recovery experience including expected recoveries from FHA, USDA, VA, and PIH. The aggregate of the short sales 67 receivable and the allowance for short sales receivable is the amount that Ginnie Mae determines to be collectible. Ginnie Mae records a charge-off as a reduction to the allowance for loan losses when losses are confirmed through the receipt of claims in full satisfaction of a loan from an insuring agency. Management is currently assessing current and historic accounting practices for potential restatement. Short Sale Claims Receivable, net as of September 30, 2016 and 2015, was $107 and $45 million, respectively. Note 10: General Property, Plant, and Equipment (Net) General property, plant, and equipment consists of furniture, fixtures, equipment and data processing software used in providing goods and services that have an estimated useful life of two or more years. Purchases of $100,000 or more are recorded as an asset and depreciated over their estimated useful life on a straight-line basis with no salvage value. Capitalized replacement and improvement costs are depreciated over the remaining useful life of the replaced or improved asset. Generally, the Department’s assets are depreciated over a four-year period, unless it can be demonstrated that the estimated useful life is significantly greater than four years. The following shows general property, plant, and equipment as of September 30, 2016, and September 30, 2015 (dollars in millions): Description 2016 2015 Accumulated Accumulated Depreciation and Book Depreciation and Book Cost Amortization Value Cost Amortization Value Equipment $ 9 $ (3) $ 6 $ 7 $ - $ 7 Leasehold Improvements - - - - - - Internal Use Software 217 (172) 45 186 (152) 34 Internal Use Software in Development 330 - 330 288 - 288 Total $ 556 $ (175) $ 381 $ 481 $ (152) $ 329 Note 11: PIH Prepayments HUD’s assets include the Department’s estimates for restricted net position (RNP) balances maintained by Public Housing Authorities under the Housing Choice Voucher Program. RNP balances represent disbursements to PHAs that are in excess of their expenses. PHAs can use RNP to cover any valid housing assistance program (HAP) expenses. PIH has estimated RNP balances of $209 million and $171 million for FY 2016 related to the Housing Choice Voucher and Moving to Work Programs. 68 Note 12: Other Assets The following shows HUD’s Other Assets as of September 30, 2016 and 2015 (dollars in millions): 2016 Description FHA Ginnie Mae Section 8 All Other Total Intragovernmental Assets: Other Assets $ - $ - $ 5 $ 38 $ 43 Total Intragovernmental Assets - - 5 38 43 Public: Mortgagor Reserves for Replacement - Cash $ 30 $ - $ - $ - $ 30 Other Assets 23 - - - 23 Total $ 53 $ - $ 5 $ 38 $ 96 2015 Description FHA Ginnie Mae Section 8 All Other Total Intragovernmental Assets: Other Assets $ 1 $ - $ 4 $ 4 $ 9 Total Intragovernmental Assets 1 - 4 4 9 Public: Mortgagor Reserves for Replacement - Cash $ 37 $ - $ - $ - $ 37 Other Assets 8 - - - 8 Total $ 46 $ - $ 4 $ 4 $ 54 Note 13: Liabilities Covered and Not Covered by Budgetary Resources The following shows HUD’s liabilities as of September 30, 2016 and 2015 (dollars in millions): Description 2016 2015 Covered Not-Covered Total Covered Not-Covered Total Intragovernmental Accounts Payable $ 24 $ - $ 24 $ 16 $ - $ 16 Debt 31,002 - 31,002 27,150 - 27,150 Other Intragovernmental Liabilities 2,832 192 3,024 3,132 16 3,148 Total Intragovernmental Liabilities $ 33,858 $ 192 $ 34,050 $ 30,298 $ 16 $ 30,314 Accounts Payable 1,006 - 1,006 966 - 966 Accrued Grant Liabilities 2,663 - 2,663 2,388 - 2,388 Liabilities for Loan Guarantees (2,057) - (2,057) 13,473 - 13,473 Debt 8 - 8 8 - 8 Federal Employee and Veterans' Benefits - 64 64 - 69 69 Loss Liability 3 - 3 - - - Other Liabilities 1,235 132 1,367 1,105 134 1,239 Total Liabilities $ 36,716 $ 388 $ 37,104 $ 48,238 $ 219 $ 48,457 HUD’s other governmental liabilities principally consist of Ginnie Mae’s deferred revenue, FHA’s special receipt account, and the Department’s payroll costs. Further disclosures of HUD’s other liabilities are also found in Note 17. 69 Note 14: Debt Several HUD programs have the authority to borrow funds from the U.S. Treasury for program operations. Additionally, the National Housing Act authorizes FHA, in certain cases, to issue debentures in lieu of cash to pay claims. Also, PHAs and TDHEs borrowed funds from the private sector and from the Federal Financing Bank (FFB) to finance construction and rehabilitation of low rent housing. HUD is repaying these borrowings on behalf of the PHAs and TDHEs. The following shows HUD borrowings, and borrowings by PHAs/TDHEs for which HUD is responsible for repayment, as of September 30, 2016 (dollars in millions): Beginning Net Ending Description Balance Borrowings Balance Debt to the Federal Financing Bank $ 103 $ 452 $ 555 Debt to the U.S. Treasury 27,047 3,400 30,447 Held by the Public 8 - 8 Total $ 27,158 $ 3,852 $ 31,010 Classification of Debt: Intragovernmental Debt $ 31,002 Debt held by the Public 8 Total $ 31,010 The following shows HUD borrowings, and borrowings by PHAs/TDHEs for which HUD is responsible for repayment, as of September 30, 2015 (dollars in millions): Beginning Net Ending Description Balance Borrowings Balance Debt to the Federal Financing Bank $ - $ 122 $ 122 Debt to the U.S. Treasury 27,661 (633) 27,028 Held by the Public 9 (1) 8 Total $ 27,670 $ (512) $ 27,158 Classification of Debt: Intragovernmental Debt $ 27,150 Debt held by the Public 8 Total $ 27,158 The purpose of these borrowings is discussed in the following paragraphs. Borrowings from the U.S. Treasury In FY 2016 and FY 2015, FHA borrowed $30.9 billion and $27 billion, respectively, from the U.S. Treasury. In accordance with Credit Reform accounting, FHA borrows from the U.S. Treasury when cash is needed in its financing accounts. Usually, the need for cash arises when FHA has to transfer the negative credit subsidy amounts related to new loan disbursements and existing loan modifications from the financing accounts to the general fund receipt account (for 70 cases in GI/SRI funds) or to the capital reserve account (for cases in MMI/CMHI funds). In some instances, borrowings are also needed to transfer the credit subsidy related to downward re- estimates when available cash is less than claim payments due. These borrowings carried interest rates ranging from 1.02 percent to 7.59 percent during FY 2016. Borrowings from the Federal Financing Bank (FFB) and the Public During the 1960s, 1970s, and 1980s, PHAs obtained loans from the private sector and from the FFB to finance development and rehabilitation of low rent housing projects. HUD is repaying these borrowings on behalf of the PHAs, through the Low Rent Public Housing program. For borrowings from the public, interest is payable throughout the year. Before July 1, 1986, the FFB purchased notes issued by units of general local government and guaranteed by HUD under Section 108. These notes had various maturities and carried interest rates that were one-eighth of one percent above rates on comparable Treasury obligations. The FFB held substantially all outstanding notes, and no note purchased by the FFB has ever been declared in default. In March of FY 2010, HUD repaid all FFB borrowings for the Low Rent Public Housing program. Debentures Issued to Claimants The National Housing Act authorizes FHA, in certain cases, to issue debentures in lieu of cash to settle claims. FHA-issued debentures bear interest at rates established by the U.S. Treasury. There were no debentures issued in FY 2013. Interest rates related to the outstanding debentures ranged from 4.00 percent to 13.375 percent in FY 2011. Debentures may be redeemed by lenders prior to maturity to pay mortgage insurance premiums to FHA, or they may be called with the approval of the Secretary of the U. S. Treasury. Note 15: Federal Employee and Veterans’ Benefits HUD is a non-administering agency; therefore, it relies on cost factors and other actuarial projections provided by the Department of Labor (DOL) and Office of Personnel Management (OPM). HUD’s imputed costs consist of two components, pension and health care benefits. During FY 2016, HUD recorded imputed costs of $67 million which consisted of $23 million for pension and $44 million for health care benefits. During FY 2015, HUD recorded imputed costs of $65 million which consisted of $27 million for pension and $38 million for health care benefits. These amounts are reported by OPM and charged to expense with a corresponding amount considered as an imputed financing source in the Statement of Changes in Net Position. HUD also accrues the portion of the estimated liability for disability benefits assigned to the agency under the Federal Employee Compensation Act (FECA), administered and determined by the DOL. The liability, based on the net present value of estimated future payments based on a study conducted by DOL, was $64 million as of September 30, 2016, and $69 million as of 71 September 30, 2015. Future payments on this liability are to be funded by future financing sources. In addition to the imputed costs of $67 million noted above, HUD recorded net benefit expenses totaling $49 million for FY 2016 and $179 million for FY 2015. Note 16: MBS Loss Liability Liability for loss on MBS program guaranty (MBS loss liability) represents the loss contingency that arises from the guaranty obligation that Ginnie Mae has to the MBS holders as a result of a probable issuer default. In FY2016, Ginnie Mae recorded $3 million in loss reserves. The issuers have the obligation to make timely principal and interest payments to investors, however, in the event whereby the issuer defaults, Ginnie Mae steps in and continues to make the contractual payments to investors. The contingent aspect of the guarantee is measured under ASC Subtopic 450-20, Contingencies – Loss Contingencies. Ginnie Mae’s Office of Enterprise Risk (ERO) utilizes Corporate Watch to assist in the analysis of potential defaults. Corporate Watch assigns each issuer an internal risk grade using an internally developed proprietary risk-rating methodology. The objective of the methodology is to identify those Ginnie Mae issuers that display an elevated likelihood of default relative to their peers. To this end, the methodology assigns each active Issuer a risk grade ranging from 1-8, with 1 representing a low probability of default and 8 representing an elevated probability of default. A higher probability of default would arise from an observed weakness in an entity's financial health. Those Issuers with an elevated probability of default are assigned an internal risk grade of 7 or 8 and are automatically included in Risk Category I of the Watch List. ERO prepares written financial reviews on all Issuers appearing in Risk Category I of Watch List to assess the level of on-going monitoring needed to ensure that these Issuers remain viable Ginnie Mae counterparties or to take other mitigation actions. 72 Note 17: Other Liabilities The following shows HUD’s Other Liabilities as of September 30, 2016 (dollars in millions): Non- Description Current Current Total Intragovernmental Liabilities FHA Special Receipt Account Liability $ - $ 2,765 $ 2,765 Unfunded FECA Liability 15 - 15 Employer Contributions and Payroll Taxes - 9 9 Miscellaneous Receipts Payable to Treasury - 221 221 Advances to Federal Agencies - 14 14 Total Intragovernmental Liabilities $ 15 $ 3,009 $ 3,024 Other Liabilities FHA Other Liabilities $ - $ 543 $ 543 FHA Escrow Funds Related to Mortgage Notes - 312 312 Ginnie Mae Deferred Income 292 20 312 Deferred Credits - 4 4 Deposit Funds - 9 9 Accrued Unfunded Annual Leave 77 - 77 Accrued Funded Payroll Benefits - 32 32 Contingent Liability 55 - 55 Other 7 16 23 Total Other Liabilities $ 446 $ 3,945 $ 4,391 The following shows HUD’s Other Liabilities as of September 30, 2015 (dollars in millions): Non- Description Current Current Total Intragovernmental Liabilities FHA Special Receipt Account Liability $ - $ 2,889 $ 2,889 Unfunded FECA Liability 16 - 16 Employer Contributions and Payroll Taxes - 5 5 Miscellaneous Receipts Payable to Treasury - 228 228 Advances to Federal Agencies - 10 10 Total Intragovernmental Liabilities $ 16 $ 3,132 $ 3,148 Other Liabilities FHA Other Liabilities $ - $ 412 $ 412 FHA Escrow Funds Related to Mortgage Notes - 314 314 Ginnie Mae Deferred Income 273 34 307 Deferred Credits - 18 18 Deposit Funds - 13 13 Accrued Unfunded Annual Leave 79 - 79 Accrued Funded Payroll Benefits - 32 32 Contingent Liability 55 - 55 Other 7 2 9 Total Other Liabilities $ 430 $ 3,957 $ 4,387 Special Receipt Account Liability The special receipt account liability is created from negative subsidy endorsements and downward credit subsidy in the GI/SRI special receipt account. 73 Note 18: Financial Instruments with Off-Balance Sheet Risk Some of HUD’s programs, principally those operated through FHA and Ginnie Mae, enter into financial arrangements with off-balance sheet risk in the normal course of their operations. A. FHA Mortgage Insurance The outstanding principal of FHA’s guaranteed loans (face value) as of September 30, 2016 and 2015, was $1.3 trillion and $1.3 trillion, respectively. The amount of outstanding principal guaranteed (insurance-in-force) as of September 30, 2016 and 2015, was $1.2 trillion and $1.2 trillion, respectively, as disclosed in Note 8J. The maximum claim amount (MCA) outstanding for FHA’s reverse mortgage insurance program (HECM) as of September 30, 2016 and 2015, was $148 billion and $150 billion, respectively. As of September 30, 2016 and 2015, the insurance-in-force (the outstanding balance of active loans) was $105 billion and $105 billion, respectively, as disclosed in Note 8J. The HECM insurance in force includes balances drawn by the mortgagee, interest accrued on the balances drawn, service charges, and mortgage insurance premiums. The maximum claim amount is the dollar ceiling to which the outstanding loan balance can grow before being assigned to FHA. B. Ginnie Mae Mortgage-Backed Securities Ginnie Mae financial instruments with off-balance sheet risk include guarantees of MBS and commitments to guarantee MBS. The securities are backed by pools of FHA, USDA, VA, and PIH mortgage loans. Ginnie Mae is exposed to credit loss in the event of non-performance by other parties to the financial instruments. The total amount of Ginnie Mae guaranteed securities outstanding at September 30, 2016 and 2015, was approximately $1.7 trillion and $1.6 trillion, respectively. However, Ginnie Mae’s potential loss is considerably less because of the financial strength of the Department’s issuers. Additionally, in the event of default, the underlying mortgages serve as primary collateral and FHA, USDA, VA, and PIH insurance or guarantee indemnifies Ginnie Mae for most losses. During the mortgage closing period and prior to granting its guaranty, Ginnie Mae enters into commitments to guarantee MBS. The commitment ends when the MBS are issued or when the commitment period expires. Ginnie Mae’s risks related to outstanding commitments are much less than for outstanding securities due, in part, to Ginnie Mae’s ability to limit commitment authority granted to individual issuers of MBS. Outstanding commitments as of September 30, 2016 and 2015, were $96 billion and $129 billion, respectively. Generally, Ginnie Mae’s MBS pools are diversified among issuers and geographic areas. No significant geographic concentrations of credit risk exist; however, to a limited extent, securities are concentrated among issuers. In FY 2016 and FY 2015, Ginnie Mae issued a total of $103 billion and $93 billion, respectively, in its multi-class securities program. The estimated outstanding balance for the complete multi- class securities program (REMICs, Platinum’s, etc.) at September 30, 2016 and 2015, were 74 $474 billion and $473 billion, respectively. These guaranteed securities do not subject Ginnie Mae to additional credit risk beyond that assumed under the MBS program. C. Section 108 Loan Guarantees Under HUD’s Loan Guarantee (Section 108) program, recipients of the CDBG Entitlement Grant program funds may pledge future grant funds as collateral for loans guaranteed by HUD (these loans were provided from private lenders since July 1, 1986). Section 108 provides entitlement communities with a source of financing for projects that are too large to be financed from annual grants. The amount of loan guarantees outstanding as of September 30, 2016 and 2015, was $2 billion and $2 billion, respectively. HUD’s management believes its exposure in providing these loan guarantees is limited, since loan repayments can be offset from future CDBG Entitlement Program Funds and, if necessary, other funds provided to the recipient by HUD. HUD has never had a loss under this program since its inception in 1974. Note 19: Contingencies Lawsuits and Other The general counsel has reviewed FHA’s legal actions and claims for FY 2016 and determined as of September 30, 2016, that the ultimate resolution of legal actions would not affect FHA’s consolidated financial statements. As a result, no contingent liability has been recorded. HUD is party to a number of claims and tort actions related to lawsuits brought against it concerning the implementation or operation of its various programs. A union grievance case, Fair and Equitable Arbitration Remedy, FMCS No. 03-07743, 66 FLRA 867, was filed based on alleged violations of articles of the parties’ Collective Bargaining Agreement. The grievance alleged that HUD failed to treat employees fairly and equitably based upon the manner in which the Agency posted and subsequently selected candidates from job advertisements and vacancy announcements. Although the litigation is not final, the estimated potential loss is probable at this time and as a result, the Department has recorded a contingent liability of $55 million in its financial statements. Pending litigation on this case will likely take one or many years to resolve. The Union’s version of compliance could cost up to $665 million, including attorney’s fees, if the parties do not resolve this matter, and if the Union gets all of its requested relief. Other ongoing suits cannot be reasonably determined at this time and in the opinion of management and general counsel, the ultimate resolution of the other pending litigation will not have a material effect on the Department’s financial statements. Note 20: Funds from Dedicated Collections Funds from dedicated collections are financed by specifically identified revenues and are required by statute to be used for designated activities or purposes. 75 Ginnie Mae Ginnie Mae is a self-financed government corporation, whose program operations are financed by a variety of fees, such as guaranty, commitment, new issuer, handling, and transfer servicing fees, which are to be used only for Ginnie Mae’s legislatively authorized mission. In FY 2016, Ginnie Mae was authorized to use $23 million for payroll and payroll related expense, funded by commitment fees. Rental Housing Assistance Fund The Housing and Urban Development Act of 1968 authorized the Secretary to establish a revolving fund into which rental collections in excess of the established basic rents for units in Section 236 subsidized projects would be deposited. The Housing and Community Development Amendment of 1978 authorized the Secretary, subject to approval in appropriation acts, to transfer excess rent collections received after 1978 to the Troubled Projects Operating Subsidy program, renamed the Flexible Subsidy Fund. Prior to that time, collections were used for paying tax and utility increases in Section 236 projects. The Housing and Community Development Act of 1980 amended the 1978 Amendment by authorizing the transfer of excess rent collections regardless of when collected. Flexible Subsidy The Flexible Subsidy Fund assists financially troubled subsidized projects under certain FHA authorities. The subsidies are intended to prevent potential losses to the FHA fund resulting from project insolvency and to preserve these projects as a viable source of housing for low and moderate-income tenants. Priority was given with Federal insurance-in-force and then to those with mortgages that had been assigned to the Department. American Recovery and Reinvestment Act Programs (Recovery Act) The Recovery Act includes $14 billion for 17 programs at HUD which are distributed across three themes that align with the broader Recovery goals. A further discussion of HUD’s accomplishments under the Recovery Act program can be found at www.hud.gov/recovery. Manufactured Housing Fees Trust Fund The National Manufactured Housing Construction and Safety Standards Act of 1974, as amended by the Manufactured Housing Improvement Act of 2000, authorizes development and enforcement of appropriate standards for the construction, design, and performance of manufactured homes to assure their quality, durability, affordability, and safety. Fees are charged to the manufacturers for each manufactured home transportable section produced and will be used to fund the costs of all authorized activities necessary for the consensus committee (HUD) and its agents to carry out all aspects of the manufactured housing legislation. The fee receipts are permanently appropriated and have helped finance a portion of 76 the direct administrative expenses incurred in program operations. Activities are initially financed via transfer from the Manufactured Housing General Fund. The following shows funds from dedicated collections as of September 30, 2016 (dollars in millions): Tenant Project Based Based Rental Manufactued Total Rental Rental Housing Flexible Housing Fees Recovery Earmarked Ginnie Mae Assistance Assistance Assistance Subsidy Trust Fund Act Funds Other Eliminations Funds Balance Sheet Fund Balance w/Treasury $ 1,379 $ 12 $ 18 $ 9 $ 433 $ 14 $ 9 $ - $ 13 $ 1,887 Cash and Other Monetary Assets 60 - - - - - - - - 60 Investments 15,954 - - - - - - - - 15,954 Accounts Receivable 113 - - 4 - - 5 - - 122 Loans Receivable 4,233 - - - 417 - - - - 4,650 Other Non-Credit Reform Loans Receivable 83 - - - - - - - - 83 General Property, Plant and Equipment - - - - - - 1 - - 1 Other - - - - - - - - - - Total Assets $ 21,822 $ 12 $ 18 $ 13 $ 850 $ 14 $ 15 $ - $ 13 $ 22,757 Debt - Intragovernmental $ - $ - $ - $ - $ - $ - $ 5 $ - $ - $ 5 Accounts Payable - Intragovernmental - - - - - - - - - Accounts Payable - Public 113 - - - - 3 - - - 116 Loan Guarantees - - - - - - - - - - Loss Liability - - - - - - - - - - Other Liabilities - Intragovernmental - - - - - - - - - - Other Liabilities - Public 323 - - - - - - - - 323 Total Liabilities $ 436 $ - $ - $ - $ - $ 3 $ 5 $ - $ - $ 444 Unexpended Appropriations $ - $ 12 $ 18 $ (5) $ (377) $ - $ 10 $ - $ - $ (342) Cumulative Results of Operations 21,386 - - 18 1,227 11 - - 13 22,655 Total Net Position $ 21,386 $ 12 $ 18 $ 13 $ 850 $ 11 $ 10 $ - $ 13 $ 22,313 Total Liabilities and Net Position $ 21,822 $ 12 $ 18 $ 13 $ 850 $ 14 $ 15 $ - $ 13 $ 22,757 Statement of Net Cost For the Period Ended Gross Costs $ 432 $ 33 $ 34 $ - $ (4) $ 15 $ 16 $ - $ - $ 526 Less Earned Revenues (1,646) - - - (4) (12) - - - (1,662) Net Costs $ (1,214) $ 33 $ 34 $ - $ (8) $ 3 $ 16 $ - $ - $ (1,136) Statement of Changes in Net Position for the Period Ended Net Position Beginning of Period $ 20,175 $ 8 $ 9 $ 12 $ 839 $ 14 $ 55 $ - $ - $ 21,112 Correction of Errors (7) - - - - - - - - (7) Appropriations Received - - - - - - - - - - Transfers In/Out Without Reimbursement - 37 43 - - - (13) - 13 80 Imputed Costs - - - - - - - - - - Donations and Forfeitures of Cash & Cash Equivalents - - - - - - - - - - Penalties, Fines, and Administrative Fees Revenue 4 - - - - - - - - 4 Other Adjustments - - - 1 3 - (16) - - (12) Net Cost of Operations 1,214 (33) (34) - 8 (3) (16) - - 1,136 Change in Net Position $ 1,218 $ 4 $ 9 $ 1 $ 11 $ (3) $ (45) $ - $ 13 $ 1,208 Net Position End of Period $ 21,386 $ 12 $ 18 $ 13 $ 850 $ 11 $ 10 $ - $ 13 $ 22,313 77 The following shows funds from dedicated collections as of September 30, 2015 (dollars in millions): Tenant Project Based Based Rental Manufactued Total Rental Rental Housing Flexible Housing Fees Recovery Earmarked Ginnie Mae Assistance Assistance Assistance Subsidy Trust Fund Act Funds Other Funds Balance Sheet Fund Balance w/Treasury $ 2,142 $ 8 $ 9 $ 8 $ 380 $ 14 $ 42 $ - $ 2,603 Cash and Other Monetary Assets 45 - - - - - - - 45 Investments 12,923 - - - - - - - 12,923 Accounts Receivable 131 - - 4 - - 18 - 153 Loans Receivable - - - - 459 - (2) - 457 Other Non-Credit Reform Loans Receivable 5,325 - - - - - - - 5,325 General Property, Plant and Equipment 58 - - - - - - - 58 Other - - - - - - - - - Total Assets $ 20,624 $ 8 $ 9 $ 12 $ 839 $ 14 $ 58 $ - $ 21,564 Debt - Intragovernmental $ - $ - $ - $ - $ - $ - $ 3 $ - $ 3 Accounts Payable - Intragovernmental - - - - - - - - Accounts Payable - Public 135 - - - - - - - 135 Loan Guarantees - - - - - - - - - Loss Liability - - - - - - - - - Other Liabilities - Intragovernmental - - - - - - - - - Other Liabilities - Public 314 - - - - - - - 314 Total Liabilities $ 449 $ - $ - $ - $ - $ - $ 3 $ - $ 452 Unexpended Appropriations $ 1 $ 8 $ 9 $ - $ (376) $ - $ 55 $ - $ (303) Cumulative Results of Operations 20,174 - - 12 1,215 14 - - 21,415 Total Net Position $ 20,175 $ 8 $ 9 $ 12 $ 839 $ 14 $ 55 $ - $ 21,112 Total Liabilities and Net Position $ 20,624 $ 8 $ 9 $ 12 $ 839 $ 14 $ 58 $ - $ 21,564 Statement of Net Cost For the Period Ended Gross Costs $ (234) $ 23 $ 16 $ (3) $ 3 $ 9 $ 79 $ - $ (107) Less Earned Revenues (1,551) - - (2) (3) (11) - - (1,567) Net Costs $ (1,785) $ 23 $ 16 $ (5) $ - $ (2) $ 79 $ - $ (1,674) Statement of Changes in Net Position for the Period Ended Net Position Beginning of Period $ 18,390 $ 31 $ 25 $ 10 $ 838 $ 12 $ 157 $ - $ 19,463 Correction of Errors - - - (3) - - - - (3) Appropriations Received - - - - - - - - - Transfers In/Out Without Reimbursement - - - - - - - - - Imputed Costs 1 - - - - - - - 1 Donations and Forfeitures of Cash & Cash Equivalents - - - - - - - - - Penalties, Fines, and Administrative Fees Revenue - - - - 1 - - - 1 Other Adjustments (1) - - - - - (23) - (24) Net Cost of Operations 1,785 (23) (16) 5 - 2 (79) - 1,674 Change in Net Position $ 1,785 $ (23) $ (16) $ 5 $ 1 $ 2 $ (102) $ - $ 1,652 Net Position End of Period $ 20,175 $ 8 $ 9 $ 12 $ 839 $ 14 $ 55 $ - $ 21,112 Note 21: Intragovernmental Costs and Exchange Revenue The data below shows HUD’s intragovernmental costs and earned revenue separately from activity with the public. Intragovernmental transactions are exchange transactions made between two reporting entities within the Federal government. Intragovernmental costs are identified by the source of the goods and services; both the buyer and seller are Federal entities. Revenues recognized by the Department may also be reported as non-Federal if the goods or services are 78 subsequently sold to the public. Public activity involves exchange transactions between the reporting entity and a non-Federal entity. The following shows HUD’s intragovernmental costs and exchange revenue (dollars in millions): Low Rent Federal Section 8 Public Housing Homeless Housing for Community Financial 2016 Housing Rental Loans and Assistance the Elderly Development Statement Administration Ginnie Mae Assistance Grants Grants and Disabled Block Grants HOME All Other Eliminations Consolidating Intragovernmental Costs $ 1,239 $ 4 $ 49 $ 29 $ 6 $ 17 $ 18 $ 4 $ 513 $ - $ 1,879 Public Costs (18,997) 428 30,604 2,966 1,951 957 6,268 1,163 5,838 - 31,178 Subtotal Costs $ (17,758) $ 432 $ 30,653 $ 2,995 $ 1,957 $ 974 $ 6,286 $ 1,167 $ 6,351 $ - $ 33,057 Unassigned Costs $ 262 $ 262 Total Costs $ 33,319 Intragovernmental Earned Revenue $ (1,151) $ (84) $ - $ - $ - $ - $ - $ - $ (20) $ - $ (1,255) Public Earned Revenue (67) (1,562) - - 5 (109) - - (17) - (1,750) Total Earned Revenue (1,218) (1,646) - - 5 (109) - - (37) - (3,005) Net Cost of Operations $ (18,976) $ (1,214) $ 30,653 $ 2,995 $ 1,962 $ 865 $ 6,286 $ 1,167 $ 6,576 $ - $ 30,314 Low Rent Federal Section 8 Public Housing Homeless Housing for Community Financial 2015 Housing Rental Loans and Assistance the Elderly Development Statement Administration Ginnie Mae Assistance Grants Grants and Disabled Block Grants HOME All Other Eliminations Consolidating Intragovernmental Costs $ 1,206 $ 4 $ 70 $ 37 $ 13 $ 47 $ 20 $ 8 $ 316 $ - $ 1,721 Public Costs (17,409) (238) 29,412 2,798 1,881 990 7,547 1,233 5,755 - 31,969 Subtotal Costs $ (16,203) $ (234) $ 29,482 $ 2,835 $ 1,894 $ 1,037 $ 7,567 $ 1,241 $ 6,071 $ - $ 33,690 Unassigned Costs $ 218 $ 218 Total Costs $ 33,908 Intragovernmental Earned Revenue $ (1,791) $ (128) $ - $ - $ (4) $ - $ - $ - $ (12) $ - $ (1,935) Public Earned Revenue (58) (1,427) - - - (136) - - (17) - (1,638) Total Earned Revenue (1,849) (1,555) - - (4) (136) - - (29) - (3,573) Net Cost of Operations $ (18,052) $ (1,789) $ 29,482 $ 2,835 $ 1,890 $ 901 $ 7,567 $ 1,241 $ 6,260 $ - $ 30,335 79 Note 22: Total Cost and Earned Revenue by Budget Functional Classification The following shows HUD’s total cost and earned revenue by budget functional classification for FY 2016 (dollars in millions): Budget Functional Classification Gross Cost Earned Revenue Net Cost Intragovernmental: Commerce and Housing Credit $ 1,246 $ (1,236) $ 10 Community and Regional Development 70 (6) 64 Income Security 350 (12) 338 Administration of Justice 4 4 Other Multiple Functions 211 (1) 210 Total Intragovernmental 1,881 (1,255) 626 With the Public: Commerce and Housing Credit $ (18,486) $ (1,749) $ (20,235) Community and Regional Development 6,393 - 6,393 Income Security 43,145 - 43,145 Administration of Justice 74 (1) 73 Other Multiple Functions 50 - 50 Total with the Public $ 31,176 $ (1,750) $ 29,426 Not Assigned to Programs: Income Security 262 - 262 Total with the Public $ 262 $ - $ 262 TOTAL: Commerce and Housing Credit $ (17,240) $ (2,985) $ (20,225) Community and Regional Development 6,463 (6) 6,457 Income Security 43,757 (12) 43,745 Administration of Justice 78 (1) 77 Other Multiple Functions 261 (1) 260 TOTAL: $ 33,319 $ (3,005) $ 30,314 80 The following shows HUD’s total cost and earned revenue by budget functional classification for FY 2015 (dollars in millions): Budget Functional Classification Gross Cost Earned Revenue Net Cost Intragovernmental: Commerce and Housing Credit $ 1,212 $ (1,920) $ (708) Community and Regional Development 86 - 86 Income Security 424 (15) 409 Other Multiple Functions (1) (1) (2) Total Intragovernmental 1,721 (1,936) (215) With the Public: Commerce and Housing Credit $ (17,734) $ (1,629) $ (19,363) Community and Regional Development 7,659 - 7,659 Income Security 41,676 (7) 41,669 Administration of Justice 61 (1) 60 Other Multiple Functions 307 - 307 Total with the Public $ 31,969 $ (1,637) $ 30,332 Not Assigned to Programs: Income Security 218 - 218 Total with the Public $ 218 $ - $ 218 TOTAL: Commerce and Housing Credit $ (16,522) $ (3,549) $ (20,071) Community and Regional Development 7,745 - 7,745 Income Security 42,318 (22) 42,296 Administration of Justice 61 (1) 60 Other Multiple Functions 306 (1) 305 TOTAL: $ 33,908 $ (3,573) $ 30,335 Note 23: Expenditures by Strategic Goals As HUD updated its Strategic Plan to address the economic and community development issues the nation is facing, five Strategic Goals were identified. This note presents the expenditures incurred by HUD’s various programs in achieving these goals. A description of each Strategic Goal is presented below and additional information is found in the Strategic Plan section of the AFR. Goal 1: Strengthen the nation’s housing market to bolster the economy and protect consumers Goal 2: Meet the need for quality affordable rental homes Goal 3: Utilize housing as a platform for improving quality of life Goal 4: Build inclusive and sustainable communities free from discrimination Goal 5: Transform the way HUD does business 81 The following table shows the expenditures allocated to HUD’s Strategic Goals for FY 2016 (dollars in millions): Goal 1 Goal 2 Goal 3 Goal 4 Goal 5 Total Programs FHA $ (12,335) $ (2,846) $ (759) $ (3,036) $ - $ (18,976) Ginnie Mae (910) (304) - - - (1,214) Section 8 Rental Assistance - 25,066 200 5,387 - 30,653 Low Rent Public Housing Loans and Grants 419 2,197 75 304 - 2,995 Homeless Assistance Grants - 1,373 589 - - 1,962 Housing for the Elderly and Disabled - 538 76 251 - 865 Community Development Block Grants 1,257 314 943 3,772 - 6,286 HOME 315 630 - 222 - 1,167 All Other Programs 365 3,696 805 1,365 83 6,314 Total (10,889) 30,664 1,929 8,265 83 30,052 Costs Not Assigned To Programs $ 262 Total 30,314 The following table shows the expenditures allocated to HUD’s Strategic Goals for FY 2015 (dollars in millions): Goal 1 Goal 2 Goal 3 Goal 4 Goal 5 Total Programs FHA $ (11,734) $ (2,708) $ (722) $ (2,888) $ - $ (18,052) Ginnie Mae (1,342) (447) - - - (1,789) Section 8 Rental Assistance - 24,109 192 5,181 - 29,482 Low Rent Public Housing Loans and Grants 396 2,080 71 288 - 2,835 Homeless Assistance Grants - 1,323 567 - - 1,890 Housing for the Elderly and Disabled - 561 79 261 - 901 Community Development Block Grants 1,513 379 1,135 4,540 - 7,567 HOME 335 670 - 236 - 1,241 All Other Programs 206 3,793 769 1,242 32 6,042 Total (10,626) 29,760 2,091 8,860 32 30,117 Costs Not Assigned To Programs $ 218 Total 30,335 Note 24: Net Costs of HUD’s Cross-Cutting Programs This note provides a categorization of net costs for several major program areas whose costs were incurred among HUD’s principal organizations previously discussed under Section 1 of the report. Costs incurred under HUD’s other programs represent activities which support the Department’s strategic goal to develop and preserve quality, healthy, and affordable homes. 82 The following table shows the cross-cutting of HUD’s major program areas that incur costs that cross multiple program areas for FY 2016 (dollars in millions): Public and Community Indian Planning and HUD's Cross-Cutting Programs Housing Housing Development Other Consolidated S ection 8 Intragovernmental Gross Costs $ 36 $ 13 $ - $ - $ 49 Intragovernmental Earned Revenues - - - - - Intragovernmental Net Costs $ 36 $ 13 $ - $ - $ 49 Gross Costs with the Public $ 19,869 $ 10,652 $ 83 $ - $ 30,604 Earned Revenues - - - - - Net Costs with the Public $ 19,869 $ 10,652 $ 83 $ - 30,604 Net Program Costs $ 19,905 $ 10,665 $ 83 $ - $ 30,653 Homeless Assistance Grants Intragovernmental Gross Costs $ - $ - $ - $ 6 $ 6 Intragovernmental Earned Revenues - - - - - Intragovernmental Net Costs $ - $ - $ - $ 6 $ 6 Gross Costs with the Public $ - $ - $ 1,914 $ 37 $ 1,951 Earned Revenues - - - 5 5 Net Costs with the Public $ - $ - $ 1,914 $ 42 $ 1,956 Net Program Costs $ - $ - $ 1,914 $ 48 $ 1,962 CDBG Intragovernmental Gross Costs $ - $ 17 $ - $ - $ 17 Intragovernmental Earned Revenues - - - - - Intragovernmental Net Costs $ - $ 17 $ - $ - $ 17 Gross Costs with the Public $ 2 $ 954 $ - $ - $ 956 Earned Revenues - - - (108) (108) Net Costs with the Public $ 2 $ 954 $ - $ (108) $ 848 Net Program Costs $ 2 $ 971 $ - $ (108) $ 865 All Other Intragovernmental Gross Costs $ 128 $ 109 $ 38 $ 238 $ 513 Intragovernmental Earned Revenues - - - (20) (20) Intragovernmental Net Costs $ 128 $ 109 $ 38 $ 218 $ 493 Gross Costs with the Public $ 4,812 $ 214 $ 550 $ 262 $ 5,838 Earned Revenues - - - (17) (17) Net Costs with the Public $ 4,812 $ 214 $ 550 $ 245 $ 5,821 Net Program Costs $ 4,940 $ 323 $ 588 $ 463 $ 6,314 Costs Not Assigned to Programs $ 89 $ 104 $ 69 $ - $ 262 Net Program Costs (including indirect costs) $ 5,029 $ 427 $ 657 $ 463 $ 6,576 83 The following table shows the Department’s cross-cutting costs among its major program areas for FY 2015 (dollars in millions): Public and Community Indian Planning and HUD's Cross-Cutting Programs Housing Housing Development Other Consolidated S ection 8 Intragovernmental Gross Costs $ 37 $ 32 $ - $ - $ 69 Intragovernmental Earned Revenues - - - - - Intragovernmental Net Costs $ 37 $ 32 $ - $ - $ 69 Gross Costs with the Public $ 19,053 $ 10,281 $ 80 $ (2) $ 29,412 Earned Revenues - - - - - Net Costs with the Public $ 19,053 $ 10,281 $ 80 $ (2) 29,412 Net Program Costs $ 19,090 $ 10,313 $ 80 $ (2) $ 29,481 Homeless Assistance Grants Intragovernmental Gross Costs $ - $ - $ - $ 13 $ 13 Intragovernmental Earned Revenues - - (4) - (4) Intragovernmental Net Costs $ - $ - $ (4) $ 13 $ 9 Gross Costs with the Public $ - $ - $ 1,850 $ 31 $ 1,881 Earned Revenues - - - - - Net Costs with the Public $ - $ - $ 1,850 $ 31 $ 1,881 Net Program Costs $ - $ - $ 1,846 $ 44 $ 1,890 CDBG Intragovernmental Gross Costs $ - $ - $ 20 $ - $ 20 Intragovernmental Earned Revenues - - - - - Intragovernmental Net Costs $ - $ - $ 20 $ - $ 20 Gross Costs with the Public $ 55 $ - $ 7,456 $ 36 $ 7,547 Earned Revenues - - - - - Net Costs with the Public $ 55 $ - $ 7,456 $ 36 $ 7,547 Net Program Costs $ 55 $ - $ 7,476 $ 36 $ 7,567 All Other Intragovernmental Gross Costs $ 86 $ 153 $ 50 $ 27 $ 316 Intragovernmental Earned Revenues 7 (1) 4 (23) (13) Intragovernmental Net Costs $ 93 $ 152 $ 54 $ 4 $ 303 Gross Costs with the Public $ 4,886 $ 353 $ 550 $ (34) $ 5,755 Earned Revenues - (15) - (1) (16) Net Costs with the Public $ 4,886 $ 338 $ 550 $ (35) $ 5,739 Net Program Costs $ 4,979 $ 490 $ 604 $ (31) $ 6,042 Costs Not Assigned to Programs $ 63 $ 102 $ 53 $ - $ 218 Net Program Costs (including indirect costs) $ 5,042 $ 592 $ 657 $ (31) $ 6,260 84 Note 25: FHA Net Costs FHA reports its insurance operations in three overall program areas: Single Family Forward Mortgages, Multifamily/Healthcare Mortgages, and Home Equity Conversion Mortgages (HECM). FHA operates these programs primarily through four insurance funds: Mutual Mortgage Insurance (MMI), General Insurance (GI), Special Risk Insurance (SRI), and Cooperative Management Housing Insurance (CMHI), with the MMI fund being the largest. There is a fifth fund, Hope for Homeowners (H4H), which became operational in FY 2009 and which contains minimal activity. FHA encourages homeownership through its Single Family Forward programs (Section 203(b), which is the largest program, and Section 234) by making loans readily available with its mortgage insurance programs. These programs insure mortgage lenders against losses from default, enabling those lenders to provide mortgage financing on favorable terms to homebuyers. Multifamily Housing Programs (Section 213, Section 221(d)(4), Section 207/223(f), and Section 223(a)(7)) provide FHA insurance to approved lenders to facilitate the construction, rehabilitation, repair, refinancing, and purchase of multifamily housing projects such as apartment rentals, and cooperatives. Healthcare programs (Section 232 and Section 242) enable low cost financing of health care facility projects and improve access to quality health care by reducing the cost of capital. The HECM program provides eligible homeowners who are 62 years of age and older access to the equity in their property with flexible terms. The following table shows Net Cost detail for the FHA (dollars in millions): Fiscal Year 2016 Single Family Multifamily/Healthcare Administrative Forward Program HECM Program Program Costs Total Costs Intragovernmental Gross Costs $ 791 $ 234 $ 196 $ 17 $ 1,238 Intragovernmental Earned Revenues (662) (403) (85) - (1,150) Intragovernmental Net Costs $ 129 $ (169) $ 111 $ 17 $ 88 Gross Costs with the Public $ (18,763) $ (306) $ (518) $ 591 $ (18,996) Earned Revenues (14) (1) (53) - (68) Net Costs with the Public $ (18,777) $ (307) $ (571) $ 591 $ (19,064) Net Program Costs $ (18,648) $ (476) $ (460) $ 608 $ (18,976) Fiscal Year 2015 Single Family Multifamily/Healthcare Administrative Forward Program HECM Program Program Costs Total Costs Intragovernmental Gross Costs $ 955 $ 59 $ 177 $ 16 $ 1,207 Intragovernmental Earned Revenues (1,133) (584) (74) - (1,791) Intragovernmental Net Costs $ (178) $ (525) $ 103 $ 16 $ (584) Gross Costs with the Public $ (13,284) $ (3,994) $ (699) $ 567 $ (17,410) Earned Revenues (11) (1) (46) - (58) Net Costs with the Public $ (13,295) $ (3,995) $ (745) $ 567 $ (17,468) Net Program Costs $ (13,473) $ (4,520) $ (642) $ 583 $ (18,052) 85 Note 26: Commitments under HUD’s Grant, Subsidy, and Loan Programs A. Contractual Commitments HUD has entered into extensive long-term commitments that consist of legally binding agreements to provide grants, subsidies or loans. Commitments become liabilities when all actions required for payment under an agreement have occurred. The mechanism for funding subsidy commitments generally differs depending on whether the agreements were entered into before or after 1988. With the exception of the Housing for the Elderly and Disabled and Low Rent Public Housing Loan Programs (which have been converted to grant programs), Section 235/236, and a portion of “All Other” programs, HUD management expects all of the programs to continue to incur new commitments under authority granted by Congress in future years. However, estimated future commitments under such new authority are not included in the amounts below. Prior to fiscal 1988, HUD’s subsidy programs, primarily the Section 8 program and the Section 235/236 programs, operated under contract authority. Each year, Congress provided HUD the authority to enter into multiyear contracts within annual and total contract limitation ceilings. HUD then drew on and continues to draw on permanent indefinite appropriations to fund the current year’s portion of those multiyear contracts. Because of the duration of these contracts (up to 40 years), significant authority exists to draw on the permanent indefinite appropriations. Beginning in FY 1988, the Section 8 and the Section 235/236 programs began operating under multiyear budget authority whereby the Congress appropriates the funds “up- front” for the entire contract term in the initial year. HUD’s commitment balances are based on the amount of unliquidated obligations recorded in HUD’s accounting records with no provision for changes in future eligibility, and thus are equal to the maximum amounts available under existing agreements and contracts. Unexpended appropriations and cumulative results of operations shown in the Consolidated Balance Sheet comprise funds in the U.S. Treasury available to fund existing commitments that were provided through “up-front” appropriations and also include permanent indefinite appropriations received in excess of amounts used to fund the pre-1988 subsidy contracts and offsetting collections. FHA enters into long-term contracts for both program and administrative services. FHA funds these contractual obligations through appropriations, permanent indefinite authority, and offsetting collections. The appropriated funds are primarily used to support administrative contract expenses while the permanent indefinite authority and the offsetting collections are used for program services. 86 The following shows HUD’s obligations and contractual commitments under its grant, subsidy, and loan programs as of September 30, 2016 (dollars in millions): Undelivered Orders Unexpended Permanent Investment Offsetting Undelivered Orders - Programs Appropriations Indefinite Authority Collections Obligations, Unpaid FHA $ 125 $ 80 $ - $ 1,989 $ 2,194 Ginnie Mae 1 - - 447 448 Section 8 Rental Assistance 8,898 - - - 8,898 Low Rent Public Housing Loans and Grants 4,041 - - - 4,041 Homeless Assistance Grants 2,215 - - - 2,215 Housing for the Elderly and Disabled 1,623 - - - 1,623 Community Development Block Grants 9,588 - - - 9,588 HOME Partnership Investment Program 2,647 - - - 2,647 Section 235/236 742 - - - 742 All Other 2,739 - - - 2,739 Total $ 32,619 $ 80 $ - $ 2,436 $ 35,135 The following shows HUD’s obligations and contractual commitments under its grant, subsidy, and loan programs as of September 30, 2015 (dollars in millions): Undelivered Orders Unexpended Permanent Investment Offsetting Undelivered Orders - Programs Appropriations Indefinite Authority Collections Obligations, Unpaid FHA $ 140 $ 79 $ - $ 1,825 $ 2,044 Ginnie Mae 3 - - 402 405 Section 8 Rental Assistance 8,896 - - - 8,896 Low Rent Public Housing Loans and Grants 4,359 - - - 4,359 Homeless Assistance Grants 2,389 - - - 2,389 Housing for the Elderly and Disabled 1,939 - - - 1,939 Community Development Block Grants 10,950 - - - 10,950 HOME Partnership Investment Program 2,855 - - - 2,855 Section 235/236 951 - - - 951 All Other 3,336 - - - 3,336 Total $ 35,818 $ 79 $ - $ 2,227 $ 38,124 B. Administrative Commitments In addition to the above contractual commitments, HUD has entered into administrative commitments which are reservations of funds for specific projects (including those for which a contract has not yet been executed) to obligate all or part of those funds. Administrative commitments become contractual commitments upon contract execution. 87 The following chart shows HUD’s administrative commitments as of September 30, 2016 (dollars in millions): Reservations Permanent Unexpended Indefinite Offsetting Total Programs Appropriations Appropriations Collections Reservations Section 8 Rental Assistance $ 194 $ - $ - $ 194 Low Rent Public Housing Loans and Grants 7,436 - - 7,436 Homeless Assistance Grants 226 - - 226 Housing for the Elderly and Disabled 232 - - 232 Community Development Block Grants 9 - - 9 HOME Partnership Investment Program 140 - - 140 Section 235/236 - - - - All Other 266 - - 266 Total $ 8,503 $ - $ - $ 8,503 The following chart shows HUD’s administrative commitments as of September 30, 2015 (dollars in millions): Reservations Permanent Unexpended Indefinite Offsetting Total Programs Appropriations Appropriations Collections Reservations Section 8 Rental Assistance $ 155 $ - $ - $ 155 Low Rent Public Housing Loans and Grants 9 - - 9 Homeless Assistance Grants 107 - - 107 Housing for the Elderly and Disabled 106 - - 106 Community Development Block Grants 7,868 - - 7,868 HOME Partnership Investment Program 227 - - 227 Section 235/236 - - - - All Other 182 - - 182 Total $ 8,654 $ - $ - $ 8,654 Note 27: Disaster Recovery Relief Efforts Over the past years, the Department has developed an allocation process which focuses on unanticipated disaster recovery needs. Administered by the Office of Community Planning and Development, disaster recovery funds supplements the Federal Management Agency, the Small Business Administration, and the United States Army Corps of Engineers. The Department’s funds must supplement, not replace, other sources of federal disaster recovery assistance. The funding is provided by grants to assist cities, counties, and States recover from Presidentially- declared disasters. Recent disaster recovery events include severe flooding in the upper Midwest, hurricanes in the Gulf Costs and severe weather systems, including Hurricane Sandy devastating the Mid-Atlantic region. 88 The following table shows the status of budgetary resources information for HUD’s programs funded under the Community Development Block Grant Program to support disaster relief as of September 30, 2016 (dollars in millions): Budgetary Resources Total Unobligated Balance, beginning of period $ 8,091 Recoveries - Budget Authority - Spending Authority from Offsetting Collections - Non-Expenditure Transfers, net - Other Balances Withdrawn - Total Budgetary Resources $ 8,091 Status of Budgetary Resources Obligations Incurred $ 1,670 Unobligated Balance, available 6,421 Unobligated Balance, not available - Total Status of Budgetary Resources $ 8,091 Change in Obligated Balance Obligated Balance, net beginning of period $ 6,107 Obligations Incurred 1,670 Gross Outlays (3,011) Recoveries - Obligated Balance, net end of period $ 4,766 Net Outlays $ 3,011 The data below displays cumulative activity for the four largest state recipients of HUD disaster assistance since the inception of the program. The obligations incurred and gross outlays shown above represent fiscal year activity (dollars in millions). Obligations Outlays Unliquidated Louisiana $ 14,621 $ 13,568 $ 1,053 Mississippi 5,539 5,220 319 Texas 3,751 3,044 707 Florida 393 380 13 Other States 2,287 2,604 (317) Total $ 26,591 $ 24,816 $ 1,775 89 The following table shows the status of budgetary resources information for HUD’s programs funded under the Community Development Block Grant Program to support disaster relief as of September 30, 2015 (dollars in millions): Budgetary Resources Total Unobligated Balance, beginning of period $ 11,618 Recoveries - Budget Authority - Spending Authority from Offsetting Collections - Non-Expenditure Transfers, net - Other Balances Withdrawn - Total Budgetary Resources $ 11,618 Status of Budgetary Resources Obligations Incurred $ 3,527 Unobligated Balance, available 8,091 Unobligated Balance, not available - Total Status of Budgetary Resources $ 11,618 Change in Obligated Balance Obligated Balance, net beginning of period $ 6,012 Obligations Incurred 3,527 Gross Outlays (3,432) Recoveries - Obligated Balance, net end of period $ 6,107 Net Outlays $ 3,432 The data below displays cumulative activity for the four largest state recipients of HUD disaster assistance since the inception of the program. The obligations incurred and gross outlays shown above represent fiscal year activity (dollars in millions). Obligations Outlays Unliquidated Louisiana $ 14,621 $ 13,348 $ 1,273 Mississippi 5,539 5,060 479 Texas 3,752 2,689 1,063 Florida 393 370 23 Other States 2,287 2,478 (191) Total $ 26,592 $ 23,945 $ 2,647 Note 28: Apportionment Categories of Obligations Incurred Budgetary resources are usually distributed in an account or fund by specific time periods, activities, projects, objects, or a combination of these categories. Resources apportioned by fiscal quarters are classified as Category A apportionments. Apportionments by any other category would be classified as Category B apportionments. 90 HUD’s categories of obligations incurred were as follows (dollars in millions): Category A Category B Total 2016 Direct $ 912 $ 105,436 $ 106,348 Reimbursable - 3,827 3,827 Total $ 912 $ 109,263 $ 110,175 Category A Category B Total 2015 Direct $ 984 $ 112,448 $ 113,432 Reimbursable - 5,754 5,754 Total $ 984 $ 118,202 $ 119,186 Note 29: Explanation of Differences between the Statement of Budgetary Resources and the Budget of the United States Government The President’s Budget containing actual FY 2016 data is not available for comparison to the Statement of Budgetary Resources. Actual FY 2016 data will be available in the Appendix to the Budget of the United States Government, FY 2018. For FY 2015, an analysis to compare HUD’s Statement of Budgetary Resources to the President’s Budget of the United States was performed to identify any differences. The following shows the difference between Budgetary Resources reported in the Statement of Budgetary Resources and the President’s Budget for FY 2015 (dollars in millions): Distributed Budgetary Obligations Offsetting Net Resources Incurred Receipts Outlays Combined Statement of Budgetary Resources $ 199,100 $ 119,190 $ (2,844) $ 51,883 Difference #1 - Resources related to HUD's expired accounts not reported in the President's Budget (891) (57) - - Difference #2 - Offsetting receipts included in the President's Budget - - 9 - Difference #3 - Offsetting receipts not included in the President's Budget - - 3 - Difference #4 - Ginnie Mae amounts from temporary reduction of prior year - (1) - (1) balances Difference #5 - Ginnie Mae amounts precluded from obligation - - - - Difference #6 - Rounding issues 11 (3) - (1,728) United States Budget $ 198,220 $ 119,129 $ (2,832) $ 50,154 Note 30: Reconciliation of Net Cost of Operations to Budget This note (formerly the Statement of Financing) links the proprietary data to the budgetary data. Most transactions are recorded in both proprietary and budgetary accounts. However, because different accounting bases are used for budgetary and proprietary accounting, some transactions 91 may appear in only one set of accounts. The Reconciliation of Net Cost of Operations to Budget is as follows for the periods ending September 30, 2016 and 2015 (dollars in millions): 2016 2015 Budgetary Resources Obligated Obligations Incurred $ 110,175 $ 119,186 Spending Authority from Offsetting Collections and Recoveries (62,121) (68,862) Obligations Net of Offsetting Collections $ 48,054 $ 50,324 Offsetting Receipts (2,302) (2,844) Net Obligations $ 45,752 $ 47,480 Other Resources Transfers In/Out Without Reimbursement $ 187 $ - Imputed Financing from Costs Absorbed by Others 158 65 FHA Transfers Out to U.S. Dept. of Treasury for negative subsidies (2,601) (3,679) CFO Other Resources - 4 Net Other Resources Used to Finance Activities $ (2,256) $ (3,610) Total Resources Used to Finance Activities $ 43,496 $ 43,870 Resources Used to Finance Items Not Part of the Net Cost of Operations Change in Budgetary Resources Obligated for Goods/Services/Benefits Services Ordered but Not Yet Provided $ 3,318 $ 2,895 Credit Program Resources that Increase LLG or Allowance for Subsidy 517 (14,729) Credit Program Resources not Included in Net Cost (Surplus) of Operations - 62,726 Resources that Finance the Acquisition of Assets or Liquidation of Liabilities (49,155) (49,265) Resources that Fund Expenses from Prior Periods (6,886) (19) Other Changes to Net Obligated Resources Not Affecting Net Cost of Operations 57,953 - Other (218) 16,015 Total Resources Used to Finance Items Not Part of Net Cost of Operations $ 5,529 $ 17,623 Total Resources Used to Finance the Net Cost of Operations $ 49,025 $ 61,493 Components of Net Cost of Operations Not Requiring/Generating Resources in the Current Period Upward/Downward Re-estimates of Credit Subsidy Expense $ (9,737) $ (4,917) Increase in Exchange Revenue Receivable from the Public (109) (139) Change in Loan Loss Reserve (7) (1) Revaluation of Assets or Liabilities - 19 Depreciation and Amortization 21 (11) Changes in Bad Debt Expenses Related to Credit Reform Receivables 5 (42) Reduction of Credit Subsidy Expense from Guarantee Endorsements and Modifications (9,716) (13,607) Increase in Annual Leave Liability 57 - Other 775 (12,460) Total Components of Net Cost of Operations Not Requiring/Generating Resources in the Current Period $ (18,711) $ (31,158) Net Cost of Operations $ 30,314 $ 30,335 92 Note 31: Restatement of the Department’s Fiscal Year 2015 Financial Statements Restatement of FHA’s Fiscal Year 2015 Financial Statements In FY 2016, FHA corrected material misstatements identified by OIG in the Consolidated Balance Sheet (BS), the Statement of Net Cost (SNC) and the Statement of Changes in Net Position (SCNP) to recognize the reduction of accrued expenses in the Home Equity Conversion Mortgage (HECM) cash flow model assumptions used to calculate the agency’s Liability for Loan Guarantees (LLG). Historically reported property Maintenance and Operating (M&O) management expenses inadvertently included accrued costs that resulted in FHA’s LLG to be overstated by $830 million in FY 2014 and $833 million in FY 2015. As a result, the overstated total gross cost of HECM expenses reported on the SNC for FY 2014 caused the cumulative results of operations reported on the SCNP to be understated by $1.4 billion. The same correction was made in the calculation of the FY 2015 model expense rate assumptions however, there was less of a net impact on FY 2015 reporting. The net effect of the error for both years, offset by the adjustment for the annual reestimates, resulted in the overall HECM gross cost reported on the SNC in FY 2015 to be overstated by $1.4 million and the cumulative result of operations on the SCNP to be understated by $835 million. Maintenance and Operating (M&O) expenses represent primarily Management and Marketing contract expenses maintained in the SAMS property management system. FHA uses M&O expenses in the cash flow model assumptions to calculate the LLG. In FY 2014 and FY 2015, the M&O expense reports FHA received for HECM showed significant increases in M&O expenses over previous years. FHA initially attributed the increases to an increase in expenses related to HECM property sales and projected the increase to level off and return to previous levels. In FY 2016, further research of the M&O data found that accrued costs (interest, service fees from assignment to conveyance, and mortgage insurance premiums) were being incorrectly included in the M&O expenses. These activities were inappropriate to include since they do not represent cash flows. FHA has restated its FY 2015 financial statements to correct the reported balance of the LLG in the current period. Due to the imminent publishing of the FY 2016 audited financial statements, the FY 2015 restatement will be presented comparatively. Recalculation of the FY 2014 corrected LLG and net costs of operations are reflected in the restated FY 2015 beginning balance of the Statement of Changes in Net Position. The restatement will affect the line balances of the Loan Receivables and Related Foreclosed Property, Other Liabilities, LLG and Current Year Results of Operations on the Balance Sheet; the HECM Gross Cost with the Public on the Statement of Net Cost; the Changes in Net Position beginning balance, Other Financing Sources and Net Costs of Operations on the Statement of Changes in Net Position; and related footnotes. 93 Restatement of Ginnie Mae’s Fiscal Year 2015 Statement of Budgetary Resources Ginnie Mae’s Statement of Budgetary Resources (SBR) for fiscal year FY 2015 was restated to correct material errors resulting from the inability of Ginnie Mae’s accounting system (GFAS) to support and perform budgetary accounting and reporting functions. GFAS has since been configured to perform this task. Furthermore, Ginnie Mae has completed its data migration and reconciliation efforts related to its budgetary accounting process. The reconciliation effort identified root causes related to the initial system configuration, as well as errors in the unautomated budgetary resources recording process. As a result, Ginnie Mae has recorded adjustments to obligations incurred, which was understated by $39 million. The restated SBR also reflects an error correction, which preclosed apportioned resources with an impact of $1 billion, thereby understating apportioned resources and overstating unapportioned resources. 94 September 30, 2015 September 30, 2015 Balance Sheet Consolidated Financial Consolidated Financial (dollars in millions) Statements (without Statements (with restatement) restatement) Change ASSETS Intragovernmental Fund Balance with Treasury (Note 4) $ 94,691 94,691 $ - Short-Term Investments (Note 6) 12,923 12,923 - Long-Term Investments Held-To-Maturity (Note 6) 14,754 14,754 - Other Assets (Note 12) 9 9 - Total Intragovernmental $ 122,377 122,377 $ - Cash and Other Monetary Assets (Note 5) $ 45 45 $ - Investments (Note 6) 31 31 - Accounts Receivable, Net (Note 7) 780 780 - Direct Loan and Loan Guarantees, Net (Note 8) 14,425 14,965 (540) Other Non-Credit Reform Loans (Note 9) 3,227 3,227 - General Property, Plant and Equipment, Net (Note 10) 329 329 - PIH Prepayments (Note 11) 672 672 - Other Assets (Note 12) 45 45 - TOTAL ASSETS $ 141,931 142,471 $ (540) LIABILITIES Intragovernmental Liabilities Accounts Payable (Note 13) $ 15 16 $ (1) Debt (Note 14) 27,150 27,150 - Other Intragovernmental Liabilities (Note 17) 2,610 3,148 (538) Total Intragovernmental $ 29,775 30,314 $ (539) Accounts Payable (Note 13) $ 966 966 $ - Accrued Grant Liabilities (Note 13) 2,388 2,388 - Loan Guarantee Liability (Note 8) 14,307 13,473 834 Debt Held by the Public (Note 14) 8 8 - Federal Employee and Veteran Benefits (Note 15) 69 69 - Loss Reserves (Note 16) - - - Other Governmental Liabilities (Note 17) 1,239 1,239 - TOTAL LIABILITIES $ 48,752 48,457 $ 295 Commitments and Contingencies (Note 19) 55 55 - Net Position Unexpended Appropriations - Funds From Dedicated Collections (Note 20) $ (320) (320) $ - Unexpended Appropriations - Other Funds 51,435 51,435 - Cumulative Results of Operations - Funds From Dedicated Collections (Note 20) 21,417 21,417 - Cumulative Results of Operations - Other Funds 20,647 21,482 (835) TOTAL NET POSITION - Funds From Dedicated Collections 21,097 21,097 - TOTAL NET POSITION - All Other Funds 72,082 72,917 (835) Total Net Position $ 93,179 94,014 $ (835) Total Liabilities and Net Position $ 141,931 142,471 $ (540) September 30, 2015 September 30, 2015 Statement of Net Cost Consolidated Financial Consolidated Financial (dollars in millions) Statements (without Statements (with restatement) restatement) Change Program Costs Gross Costs $ 33,910 $ 33,908 $ 2 Less: Earned Revenue (3,573) (3,573) - Net Program Costs $ 30,337 $ 30,335 $ 2 Net Cost of Operations $ 30,337 $ 30,335 $ 2 95 September 30, 2015 September 30, 2015 Statement of Changes in Net Position Consolidated Financial Consolidated Financial (dollars in millions) Statements (without Statements (with restatement) restatement) Change Cumulative Results of Operations: Beginning Balances $ 23,685 $ 25,055 $ (1,370) Adjustments - Corrections of Errors (3) (3) - Beginning Balances, As Adjusted $ 23,682 $ 25,052 $ (1,370) Budgetary Financing Sources: Other Adjustments $ - $ - $ - Appropriations Used 52,993 52,993 - Non-exchange Revenue 3 3 - Other Financing Sources (Non-Exchange): Imputed Financing $ 65 $ 65 $ - Other (4,342) (4,879) 537 Total Financing Sources 48,719 48,182 537 Net Cost of Operations (30,337) (30,335) (2) Net Change $ 18,382 $ 17,847 $ 535 Cumulative Results of Operations $ 42,064 $ 42,899 $ (835) Unexpended Appropriations: Beginning Balances $ 56,220 $ 56,221 $ (1) Adjustments Changes in Accounting Principles - - - Corrections of Errors 574 574 - Beginning Balances, As Adjusted $ 56,794 $ 56,795 $ (1) Budgetary Financing Sources: Appropriations Received $ 47,639 $ 47,639 $ - Appropriations Transferred In/Out - - - Other Adjustments (325) (325) - Appropriations Used (52,993) (52,994) 1 Total Budgetary Financing Sources $ (5,679) $ (5,680) $ 1 Unexpended Appropriations $ 51,115 $ 51,115 $ - Net Position $ 93,179 $ 94,014 $ (835) 96 September 30, 2015 September 30, 2015 Statement of Budgetary Resources Consolidated Financial Consolidated Financial (dollars in millions) Statements (without Statements (with restatement) restatement) Change Budgetary Resources: Unobligated Balance, Brought Forward $ 84,489 $ 84,489 $ - Adjustments to Unobligated Balance Brought Forward, October 1 - (13) 13 Unobligated balance from prior year budget authority, net $ 84,489 $ 84,476 $ 13 Recoveries of Prior Year Unpaid Obligations 1,107 1,113 (6) Other changes in unobligated balance (709) (708) (1) Unobligated balance from prior year budget authority, net $ 84,887 $ 84,881 $ 6 Appropriations (discretionary and mandatory) $ 47,458 $ 47,458 $ - Borrowing Authority (discretionary and mandatory) 12,146 12,146 - Contract Authority (discretionary and mandatory) - - - Budget Authority from non expenditure transfers, net - - - Spending Authority from offsetting collections $ 54,610 $ 54,610 - Total Budgetary Resources $ 199,101 $ 199,095 $ 6 Status of Budgetary Resources: Direct $ 113,432 $ 113,433 $ (1) Reimbursable 5,754 5,787 (33) Subtotal $ 119,186 $ 119,220 $ (34) Apportioned $ 16,604 $ 17,593 $ (989) Exempt from Apportionment - - - Unapportioned 63,311 62,283 $ 1,028 Subtotal $ 79,915 $ 79,876 $ 39 Total Status of Budgetary Resources $ 199,101 $ 199,096 $ 5 Change in Obligated Balance: Unpaid Obligations: Unpaid obligations, brought forward, Oct 1 $ 43,598 $ 43,598 $ - Adjustments to unpaid obligations, start of year (+ or -) - 13 (13) Obligations incurred 119,186 119,221 (35) Outlays (gross) (-) (119,635) (119,635) - Actual transfers, unpaid obligations (net) (+ or -) - - - Recoveries of prior year unpaid obligations (-) (1,107) (1,113) 6 Unpaid obligations, end of year $ 42,042 $ 42,084 $ (42) Uncollected Payments: Uncollected payments, Fed sources, brought forward, Oct 1 (-) $ (64) $ (65) $ 1 Adjustment to uncollected payments, Fed sources, start of year (+ or -) - - - Change in uncollected payments, Fed sources (+ or -) (6) (5) (1) Actual Transfers, uncollected payments from Federal sources (net) (+ or -) - - - Uncollected payments, Fed sources, end of year (-) $ (70) $ (70) $ - Memorandum Entries Obligated balance, start of year (+ or -) $ 43,534 $ 43,533 $ 1 Obligated balance, end of year (net) $ 41,972 $ 42,014 $ (42) BUDGET AUTHORITY, NET: Budget authority, gross (discretionary and mandatory) $ 114,212 $ 114,213 $ (1) Actual offsetting collections (discretionary and mandatory) (-) (67,752) (67,751) (1) Change in uncollected customer payments from Federal Sources - (5) 5 Anticipated offsetting collections (discretionary and mandatory) (+ or -) - - - Budget Authority, net (discretionary and mandatory) Subtotal $ 46,460 $ 46,457 $ 3 Outlays, net (discretionary and mandatory) Gross Outlays $ 119,635 $ 119,635 $ - Actual offsetting collections (discretionary and mandatory) (-) (67,749) (67,748) (1) Outlays, net (discretionary and mandatory) $ 51,886 $ 51,887 $ (1) Distributed offsetting receipts $ (2,844) $ (2,844) $ - Agency Outlays, net (discretionary and mandatory) $ 49,042 $ 49,043 $ (1) 97 Required Supplementary Stewardship Information Introduction This narrative provides information on resources utilized by HUD that do not meet the criteria for information required to be reported or audited in HUD’s financial statements but are, nonetheless, important to understand investments made by HUD for the benefit of the Nation. The stewardship objective requires that HUD also report on the broad outcomes of its actions associated with these resources. Such reporting will provide information that will help the reader to better assess the impact of HUD’s operations and activities. HUD’s stewardship reporting responsibilities extend to the investments made by a number of HUD programs in Non-Federal Physical Property, Human Capital, and Research and Development. Due to the relative immateriality of the amounts and in the application of the related administrative costs, most of the investments reported reflect direct program costs only. The investments addressed in this narrative are attributable to programs administered through the following divisions/departments: Community Planning and Development (CPD), Public and Indian Housing (PIH), and Office of Lead Hazard Control and Healthy Homes (OLHCHH). Overview of HUD’s Major Programs CPD seeks to develop viable communities by promoting integrated approaches that provide decent housing, a suitable living environment, and expanded economic opportunities for low- and moderate-income persons. HUD makes stewardship investments through the following CPD programs: Community Development Block Grants (CDBG) are provided to state and local communities, which use these funds to support a wide variety of community development activities within their jurisdictions. These activities are designed to benefit low- and moderate-income persons, aid in the prevention of slums and blight, and meet other urgent community development needs. State and local communities use the funds as they deem necessary, as long as the use of these funds meet at least one of these objectives. A portion of the funds supports the acquisition, construction or rehabilitation of permanent, residential structures that qualify as occupied by and benefiting low- and moderate- income persons, while other funds help to provide employment and job training to low- and moderate-income persons. Disaster Recovery Assistance (Disaster Grants/CDBG-DR) is a CDBG program that helps state and local governments recover from major natural disasters. A portion of these funds can be used to acquire, rehabilitate, construct, or demolish physical property. 98 The HOME Investment Partnerships Program (HOME) provides formula grants to states and localities (used often in partnership with local nonprofit groups) to fund a wide range of activities that build, buy, and/or rehabilitate affordable housing for low-income persons. Homeless – Continuum of Care (CoC) The Supportive Housing Program (SHP) was repealed and replaced by the Continuum of Care (CoC) Program effective FY 2012. The CoC is a body of stakeholders in a specific geographic area that plans and implements homeless assistance strategies (including the coordination of resources) to address the critical needs of homeless persons and facilitate their transition to jobs and independent living. Emergency Solutions Grants (ESG) provide formula funding to local units of government for homelessness prevention and to improve the number and quality of emergency and transitional shelters for homeless individuals and families. Neighborhood Stabilization Program (NSP) stabilizes communities that have suffered from foreclosures and abandonment. Through the purchase and redevelopment of foreclosed and abandoned homes and residential properties, and by providing technical assistance (NSP TA), the goal of the program is being realized. Housing Opportunities for People with HIV/AIDS (HOPWA) provides education assistance and an array of housing subsidy assistance and supportive services to assist low-income families and individuals who are living with the challenges of HIV/AIDS and risks of homelessness. Rural Innovation Fund (RIF) offers grants throughout the nation to address distressed housing conditions and concentrated poverty. The grants promote an ‘entrepreneurial approach’ to affordable housing and economic development in rural areas by providing job training, homeownership counseling and affordable housing to residents of rural and tribal communities. Community Compass (formerly OneCPD) provides technical assistance and capacity building to CPD grantees including onsite and remote training, workshops, and 1:1 assistance. PIH ensures safe, decent, and affordable housing, creates opportunities for residents’ self- sufficiency and economic independence, and assures the fiscal integrity of all program participants. HUD makes stewardship investments through the following PIH programs: Indian Community Development Block Grants (ICDBG) provide funds to Indian organizations to develop viable communities, including decent housing, a suitable living environment, and economic opportunities, principally for low and moderate-income recipients. 99 The Native Hawaiian Housing Block Grant (NHHBG) program provides an annual block grant to the Department of Hawaiian Home Lands (DHHL) for a range of affordable housing activities to benefit low-income Native Hawaiians eligible to reside on the Hawaiian home lands. The DHHL has the authority under the NHHBG program to develop new and innovative affordable housing initiatives and programs based on local needs, including down payment and other mortgage assistance programs, transitional housing, domestic abuse shelters, and revolving loan funds. Indian Housing Block Grants (IHBG) provide funds needed to allow tribal housing organizations to maintain existing units and to begin development of new units to meet their critical long-term housing needs. HOPE VI Revitalization Grants (HOPE VI) provide support for the improvement of the living environment of public housing residents in distressed public housing units. Some investments support the acquisition, construction or rehabilitation of property owned by the PHA, state or local governments, while others help to provide education and job training to residents of the communities targeted for rehabilitation. Choice Neighborhoods grants transform distressed neighborhoods and public and assisted projects into viable and sustainable mixed-income neighborhoods by linking housing improvements with appropriate services, schools, public assets, transportation, and access to jobs. The Public Housing (PH) Capital Fund provides grants to PHAs to improve the physical conditions and to upgrade the management and operation of existing public housing. The OLHCHH program seeks to eliminate childhood lead poisoning caused by lead-based paint hazards and to address other childhood diseases and injuries, such as asthma, unintentional injury, and carbon monoxide poisoning, caused by substandard housing conditions. The Lead Technical Assistance Division, in support of the Departmental Lead Hazard Control program, supports technical assistance and the conduct of technical studies and demonstrations to identify innovative methods to create lead-safe housing at reduced cost. In addition, these programs are designed to increase the awareness of lead professionals, parents, building owners, housing and public health professionals, and others with respect to lead-based paint and related property-based health issues. Lead Hazard Control Grants help state and local governments and private organizations and firms control lead-based paint hazards in low-income, privately owned rental, and owner-occupied housing. The grants build program and local capacity and generate training opportunities and contracts for low-income residents and businesses in targeted areas. 100 RSSI Reporting – HUD’s Major Programs Non-Federal Physical Property Investment in Non-Federal Physical Property: Non-Federal physical property investments support the purchase, construction, or major renovation of physical property owned by state and local governments. These investments support HUD’s strategic goals to increase the availability of decent, safe, and affordable housing and to strengthen communities. Through these investments, HUD serves to improve the quality of life and economic vitality. The table below summarizes material program investments in Non-Federal Physical Property, for fiscal years 2012 through 2016. Investments in Non-Federal Physical Property Fiscal Year 2012 – 2016 (Dollars in millions) Program 2012 2013 2014 2015 2016 CPD CDBG $1,115 $1,129 $986 $922 $996 Disaster Grants 1 $332 $330 $319 $394 $412 HOME $23 $21 $24 $18 $14 SHP/CoC - Homeless 2 $11 $1 $1 $0 $3 NSP 3 $16 $6 $1 $1 $1 RIF 4 $0 $3 $1 $0 $0 PIH ICDBG 5 $117 $54 $60 $0 $115 NHHBG $13 $12 $10 $9 $0 IHBG 6 $271 $268 $244 $290 $208 HOPE VI $122 $127 $82 $57 $63 7 Choice Neighborhoods $0 $3 $22 $43 $70 PH Capital Fund $2,223 $1,798 $1,706 $1,916 $1,830 TOTAL $4,243 $3,752 $3,456 $3,650 $3,712 Notes: 1. Disasters are unpredictable, which causes material fluctuations resulting in the prior years’ numbers being updated. 2. Low dollar value was due to shrinking resources for new programs. 3. Program is nearing closeout, and the prior years’ numbers were updated to reflect more accurate data. 4. Rural Innovation Fund was reported for the first time in FY 2012, however the amount was not material to be included in the FY 2012 AFR. More than 15 grantees have completed their projects before FY 2015 as the grant period draws to a close. Amount reported for FY 2015, estimated, due to reports for the second half of the FY not being due until 10/30/15, is not material to be included in the AFR. 5. Grants funded in 2015 were awarded in February, 2016. 6. Historical amounts were updated to reflect corrections made since the last report. 7. Choice Neighborhoods reported separately from HOPE VI for the first time in FY 2012, however the amount was not material to be included in the FY 2012 AFR. 101 Human Capital Investment in Human Capital: Human Capital investments support education and training programs that are intended to increase or maintain national economic productive capacity. These investments support HUD’s strategic goals, which are to promote self-sufficiency and asset development of families and individuals; improve community quality of life and economic vitality; and ensure public trust in HUD. The following table summarizes material program investments in Human Capital, for fiscal years 2012 through 2016. Investments in Human Capital Fiscal Year 2012 – 2016 (Dollars in millions) Program 2012 2013 2014 2015 2016 CPD CDBG $29 $24 $26 $25 $21 Disaster Grants 1 $171 $311 $809 $379 $400 ESG $4 $3 $3 $3 $3 NSP TA 2 $1 $1 $0 $0 $0 SHP/CoC - Homeless $33 $31 $26 $25 $16 HOPWA $1 $1 $1 $0 $0 Community Compass 3 $5 $21 $29 $38 $48 PIH IHBG $1 $1 $1 $2 $1 HOPE VI $15 $12 $14 $5 $5 Choice Neighborhoods 4 $0 $2 $3 $5 $12 OLHCHH Lead Technical Assistance $0 $0 $1 $0 $0 TOTAL $260 $407 $913 $482 $506 Notes: 1. Prior years’ amounts were updated because Disaster Grants activities were previously comingled with other activities. 2. Program is nearing closeout, hence the reduced expenditures in FY 2014, FY 2015 and FY 2016. 3. The FY 2016 expenditure increase is due to increased technical assistance and TA to PIH grantees and housing authorities, as well as intensive training and direct TA for grantee compliance with new AFFH requirements. 4. Choice Neighborhoods reported separately from HOPE VI for the first time in FY 2012, however the amount was not material to be included in the FY 2012 AFR. Results of Human Capital Investments: The table on the next page presents the results (number of people trained) of human capital investments made by HUD’s CPD, PIH, and OLHCHH programs for fiscal years 2012 through 2016. 102 Results of Investments in Human Capital Number of People Trained Fiscal Year 2012 – 2016 Program 2012 2013 2014 2015 2016 CPD CDBG 65,741 68,236 54,350 51,808 47,805 1 SHP/CoC - Homeless 27.4% 16.5% 11.9% N/A N/A HOPWA 1,426 1,595 1,415 1,064 502 NSP TA 2 1,414 6,995 1,397 811 27 RIF 3 0 1,048 279 397 0 4 Community Compass N/A 9,791 13,722 31,631 32,823 PIH NHHBG 5 0 0 0 0 113 6 IHBG 770 1,077 1,167 1,756 1,752 HOPE VI (see table on page 7 ) Choice Neighborhoods (see table on page 8 ) OLHCHH Lead Technical Assistance 600 590 1,069 512 2,120 TOTAL 69,951 89,332 73,399 87,979 85,142 Notes: 1. SHP/CoC- Homeless results are expressed in terms of percentage of persons exiting the programs having employment income. Goals are changing, and the data is not available to compare FY 2015 or FY 2016 to the prior year based on the old goal. 2. As of FY 2012, NSP TA outcomes data were under development in the Disaster Recovery Grant Reporting System. Performance measures were developed that will allow for more accurate and comprehensive tracking of outcomes. The number of people trained was further updated in FY 2013, FY 2014 and FY 2015 because of more reliable data. The program is nearing closeout, hence the reduced numbers of people trained in FY 2014 through FY 2016. 3. FY 2012 was the first year of reporting Rural Innovation Fund’s results of investments in human capital in the RSSI, however the amount was not material to be included in the FY 2012 AFR. Expenditures under investments for human capital, in FY 2012 through FY 2015, were also not material to be included in the AFRs. More than 15 grantees have completed their projects before FY 2015 as the grant period draws to a close. The number of people trained in FY2015 was corrected based on the last approved QPR. The final reporting period for the RIF program was 09/30/2015. 4. FY 2013 was the first year of reporting Community Compass’, formerly OneCPD’s, results of investments in human capital in the RSSI. The FY 2015 reported number has been revised, in order to make the FY 2015 and FY 2016 data comparable, with the same data elements, e.g., live in-person and remote; self-paced on line, and recorded trainings. 5. A lack of S&E funding prevented ONAP from offering training in FY 2012-2015. Grantee received training from HUD staff and, in FY 2016, from two contracted training providers. Amount invested in FY 2016 was not material to be included in the AFR. 6. New training funds were offered through a Notice of Funding Availability (NOFA) competition for contractors to provide training in FY 2015-2017. HOPE VI/Choice Neighborhoods Results of Investments in Human Capital: Since the inception of the HOPE VI program in FY 1993, the program has made significant investments in Human Capital related initiatives (i.e., education and training). The following table presents 103 HOPE VI’s key cumulative performance information for fiscal years 2012, 2013, 2014, 2015 and 2016, since the program’s inception. Key Results of HOPE VI Program Activities Fiscal Years 2012 – 2016 2012 2012 % 2013 2013 % HOPE VI Service Enrolled Completed Completed Enrolled Completed Completed Employment Preparation, Placement, & Retention 1 82,630 N/A N/A 84,792 N/A N/A Job Skills Training Programs 33,566 17,753 53% 34,664 18,322 53% High School Equivalent Education 17,684 5,164 29% 18,206 5,263 29% Entrepreneurship Training 3,672 1,613 44% 3,730 1,635 44% Homeownership Counseling 16,163 6,964 43% 16,504 7,046 43% 2014 2014 % 2015 2015 % HOPE VI Service Enrolled Completed Completed Enrolled Completed Completed Employment Preparation, Placement, & Retention 1 85,997 N/A N/A 87,005 N/A N/A Job Skills Training Programs 35,001 18,536 53% 35,364 18,685 53% High School Equivalent Education 18,389 5,315 29% 18,533 5,334 29% Entrepreneurship Training 3,746 1,649 44% 3,755 1,654 44% Homeownership Counseling 16,650 7,160 43% 16,837 7,350 44% 2016 2016 % HOPE VI Service Enrolled Completed Completed Employment Preparation, Placement, & Retention 1 87,564 N/A N/A Job Skills Training Programs 35,675 18,877 53% High School Equivalent Education 18,705 5,381 29% Entrepreneurship Training 3,795 1,682 44% Homeownership Counseling 17,399 7,804 45% Notes: 1. Completion data for this service is not provided, as all who enroll are considered recipients of the training. The table on the next page presents Choice Neighborhoods cumulative performance information for fiscal years 2014, 2015 and 2016. 104 Key Results of Choice Neighborhoods Program Activities Fiscal Years 2014 – 2016 Choice Neighborhoods Service 2014 1 2015 2016 Current Total Original Assisted Residents 5,813 7,017 10,089 Current Total Original Assisted Residents in Case Management 2,900 3,063 4,882 High School Graduation Rate 2 N/A N/A N/A Number of Residents (in Case Management) Who Completed Job Training or Other Workforce Development Programs 411 867 343 Notes: 1. 2014 was the first year of reporting results for Choice Neighborhoods Human Capital Investments. 2. Program level High School Graduation Rate date is currently not available for 2014, 2015 and 2016 due to metric only requiring individual grantees to enter rates and not numerator and denominator. Research and Development Investments in Research and Development: Research and development investments support (a) the search for new knowledge and/or (b) the refinement and application of knowledge or ideas, pertaining to development of new or improved products or processes. Research and development investments are intended to increase economic productive capacity or yield other future benefits. As such, these investments support HUD’s strategic goals, which are to increase the availability of decent, safe, and affordable housing in America’s communities; and ensure public trust in HUD. The following table summarizes HUD’s research and development investments, for fiscal years 2012 through 2016. Investments in Research and Development Fiscal Year 2012 – 2016 (Dollars in millions) Program 2012 2013 2014 2015 2016 OLHCHH Lead Hazard Control $1 $2 $3 $4 $5 TOTAL $1 $2 $3 $4 $5 105 Results of Investments in Research and Development: In support of HUD’s lead hazard control initiatives, the OLHCHH program has conducted various studies. Such studies have contributed to an overall reduction in the per-housing unit cost of lead hazard evaluation and control efforts over the last decade. More recently, as indicated in the following table, increased supply and labor costs have contributed to increases in the per-housing unit cost. The per- housing unit cost varies by geographic location and the grantees’ level of participation in control activities. These studies have also led to the identification of the prevalence of related hazards. Results of Research and Development Investments Fiscal Year 2012 – 2016 (Dollars) Program 2012 2013 2014 2015 2016 OLHCHH Lead Hazard Control Per-Housing Unit Cost $5,763 $6,321 $7,755 $8,909 $9,048 TOTAL $5,763 $6,321 $7,755 $8,909 $9,048 106 Required Supplementary Information Presented on the following pages are the additional disaggregated financial statements broken out by HUD’s major lines of business (i.e. responsibility segments) to supplement the financial statements shown earlier in the section. 107 U.S. Department of Housing and Urban Development Consolidating Balance Sheet For the Period Ending September 2016 Dollars in Millions Government Federal Housing National Mortgage Public and Indian Housing for the Community Administration Association Section 8 Rental Housing Loans and Homeless Elderly and Development Block Financial Statement 1 (FHA) (GNMA) Assistance Grants (PIH) Assistance Grants Disabled Grants (CDBG) HOME All Other Eliminations Consolidating Intragovernmental: Fund balance with Treasury (Note 4) $ 20,820 $ 1,379 $ 9,831 $ 4,519 $ 5,363 $ 2,279 $ 19,358 $ 3,230 $ 6,419 $ - $ 73,198 Short-term Overnight Investments (Note 6) - 15,954 - - - - - - - - 15,954 Long-term Investments held to maturity (Note 6) 36,398 - - - - - - - - - 36,398 Accounts Receivable, Net (Note 7) 0 7 - - - 0 - - 1 (7) 1 Other Assets (Note 12) - - 5 0 1 0 - 1 39 (3) 43 Total Intragovernmental Assets 57,218 17,340 9,836 4,520 5,364 2,279 19,358 3,231 6,459 (10) 125,594 Cash (Note 5) - 60 - - - - - - - - 60 Investments (Note 6) 31 - - - - - - - - - 31 Accounts Receivable, Net (Note 7) 243 106 68 42 2 14 10 0 125 - 611 Direct Loan and Loan Guarantees, Net (Note 8) 17,742 - - - - 1,171 - - 563 - 19,476 Other Non-Credit Reform Loans (Note 9) - 4,235 - - - - - - - (1,555) 2,680 General Property, Plant, and Equipment (Note 10) - 83 - - - - - - 298 - 381 PIH Prepayments (Note 11) - - 380 - - - - - - - 380 Other Assets (Note 12) 53 0 - 0 - - - - 0 - 53 Total Assets 75,287 21,824 10,285 4,561 5,366 3,464 19,368 3,231 7,445 (1,565) 149,266 108 Liabilities: Intragovernmental: Accounts Payable (Note 13) $ 7 $ - $ - $ - $ - $ - $ - $ - $ 24 $ (7) $ 24 Debt (Note 14) 30,873 - - - - - - - 128 - 31,001 Other Intragovernmental Liabilities (Note 17) 2,765 0 9 2 10 - - - 241 (3) 3,025 Total Intragovernmental Liabilities 33,645 0 9 2 10 - - - 393 (10) 34,050 Accounts Payable (Note 13) 495 113 4 13 8 6 42 7 318 - 1,006 Accrued Grant Liabilities (Note 13) - - - 353 168 14 1,707 312 109 - 2,663 Loan Guarantees (Note 8) (806) - - - - - - - 303 (1,555) (2,057) Debt Held by the Public (Note 14) 0 - - 8 - - - - - - 8 Federal Employee and Veterans Benefits (Note 15) - - - - - - - - 64 - 64 Loss Reserves (Note 16) - 3 - - - - - - - - 3 Other Governmental Liabilities (Note 17) 854 322 0 - - 0 - - 191 - 1,367 Total Liabilities 34,189 438 14 376 186 20 1,749 319 1,378 (1,565) 37,104 Commitments and Contingencies (Note 19) - - - - - - - - 55 - 55 Net Position: Unexpended Appropriations - Funds From Dedicated Collections (Note 20) - - 30 - - - - - (373) - (342) Unexpended Appropriations - All Other Funds 414 - 10,182 4,158 5,178 1,904 17,608 2,912 4,900 - 47,257 Cumulative Results of Operations - Funds From Dedicated Collections (Note 20) - 21,386 - - - - - - 1,256 13 22,655 Cumulative Results of Operations - All Other Funds 40,683 - 59 27 2 1,540 11 0 283 (13) 42,592 Total Net Position - Funds From Dedicated Collections - 21,386 30 - - - - - 883 13 22,313 Total Net Position - All Other Funds $ 41,098 $ - $ 10,240 $ 4,185 $ 5,180 $ 3,444 $ 17,619 $ 2,912 $ 5,184 $ (13) $ 89,849 Total Net Position $ 41,098 $ 21,386 $ 10,271 $ 4,185 $ 5,180 $ 3,444 $ 17,619 $ 2,912 $ 6,067 $ - $ 112,162 Total Liabilities and Net Position $ 75,287 $ 21,824 $ 10,285 $ 4,561 $ 5,366 $ 3,464 $ 19,368 $ 3,231 $ 7,445 $ (1,565) $ 149,266 The accompanying notes are an integral part of these statements Figures may not add to totals because of rounding. U.S. Department of Housing and Urban Development Consolidating Balance Sheet For the Period Ending September 2015 (Restated) (Dollars in Millions) Government Federal Housing National Mortgage Public and Indian Housing for the Community Financial Administration Association Section 8 Rental Housing Loans and Homeless Elderly and Development Block Statement (FHA) (GNMA) Assistance Grants (PIH) Assistance Grants Disabled Grants (CBDG) HOME All Other Eliminations Consolidating ASSETS Intragovernmental Fund balance with Treasury (Note 4) 39,057 2,142 9,692 4,866 5,161 2,405 21,524 3,448 6,396 94,691 Short-Term Investments ( Note 6) 12,923 12,923 Long-Term Investments held to maturity ( Note 6) 14,754 14,754 Other Assets (Note 12) 1 4 1 3 9 Total Intragovernmental Assets 53,811 15,065 9,696 4,866 5,161 2,405 21,524 3,449 6,399 122,377 Cash (Note 5) 45 45 Investments (Note 6) 31 31 Accounts Receivable, Net (Note 7) 408 131 33 55 8 14 12 1 119 780 Direct Loan and Loan Guarantees, Net (Note 8) 12,923 1,417 625 14,965 Other Non-Credit Reform Loans (Note 9) 5,325 (2,098) 3,227 General Property, Plant, and Equipment (Note 10) 58 271 329 PIH Prepayments (Note 11) 672 672 Other Assets (Note 12) 45 45 TOTAL ASSETS 67,218 20,624 10,401 4,921 5,169 3,836 21,536 3,450 7,414 (2,098) 142,471 LIABILITIES 109 Intragovernmental Liabilities Accounts payable (Note 13) 1 - - - - - - - 15 - 16 Debt (Note 14) 27,023 - - - - - - - 127 - 27,150 Other Intragovernmental Liabilities (Note 17) 2,889 - 13 2 5 - - - 239 - 3,148 Total Intragovernmental Liabilities 29,913 - 13 2 5 - - - 381 - 30,314 Accounts payable (Note 13) 545 135 7 17 15 1 30 6 210 - 966 Accrued Grant Liabilities (Note 13) - - - 330 132 24 1,514 324 64 - 2,388 Loan Guarantees (Note 8) 15,283 - - - - - - - 289 (2,098) 13,473 Debt Held by the Public (Note 14) 0 - - 8 - - - - - - 8 Federal Employee and Veterans Benefits (Note 15) - - - - - - - - 69 - 69 Other Governmental Liabilities (Note 17) 726 314 1 - - - - - 198 - 1,239 TOTAL LIABILITIES 46,466 449 21 357 152 25 1,544 330 1,211 (2,098) 48,457 Commitments and Contingencies (Note 19) - - - - - - - - 55 - 55 NET POSITION Unexpended Appropriations - Funds From Dedicated Coll. (Note 20) - 1 17 18 17 - - 5 (363) - (305) Unexpended Appropriations - Other Funds 871 - 10,363 4,549 4,996 2,273 19,991 3,115 5,262 - 51,420 Cumulative Results of Operations - Funds From Dedicated Coll. (Note 20) - 20,174 - - - - - - 1,243 - 21,417 Cumulative Results of Operations - Other Funds 19,881 - - (3) 4 1,538 1 - 61 - 21,482 TOTAL NET POSITION - Funds From Dedicated Collections - 20,175 17 18 17 - - 5 880 - 21,112 TOTAL NET POSITION - All Other Funds 20,752 - 10,363 4,546 5,000 3,811 19,992 3,115 5,323 - 72,902 TOTAL NET POSITION 20,752 20,175 10,380 4,564 5,017 3,811 19,992 3,120 6,203 - 94,014 TOTAL LIABILITIES AND NET POSITION 67,218 20,624 10,401 4,921 5,169 3,836 21,536 3,450 7,414 (2,098) 142,471 The accompanying notes are an integral part of these statements. Figures may not add to totals because of rounding. U.S. Department of Housing and Urban Development Consolidating Statement of Net Cost For the Periods Ending September 2016 and 2015 (Restated) (Dollars in Millions) Government Federal Housing National Mortgage Public and Indian Housing for the Community Administration Association Section 8 Rental Housing Loans and Homeless Elderly and Development Block Financial Statement 2016 (FHA) (GNMA) Assistance Grants (PIH) Assistance Grants Disabled Grants (CDBG) HOME All Other Eliminations Consolidating Intragovernmental Gross Costs (Note 21) 1,239 4 49 29 6 17 18 4 513 - 1,879 Less: Intragovernmental Earned Revenue (1,151) (84) - (0) - (0) - - (20) 0 (1,255) Intragovernmental Net Costs 87 (80) 49 29 6 17 18 4 494 0 624 Gross Costs With the Public (18,997) 427 30,604 2,965 1,951 957 6,269 1,163 5,838 - 31,177 Less: Earned Revenues From the Public (67) (1,562) - 0 5 (108) - - (17) - (1,749) Net Costs With the Public (19,064) (1,135) 30,604 2,966 1,956 849 6,269 1,163 5,821 - 29,428 Total Net Cost (18,976) (1,215) 30,653 2,995 1,962 865 6,286 1,167 6,314 0 30,052 Net program costs including Assumption Changes (18,976) (1,215) 30,653 2,995 1,962 865 6,286 1,167 6,314 0 30,052 Costs Not Assigned to Programs - - - - - - - - 263 (1) 262 Less: Earned Revenues Not Attributed to Programs - - - - - - - - - 0 0 110 Net Cost of Operations (18,976) (1,215) 30,653 2,995 1,962 865 6,286 1,167 6,577 (1) 30,313 Government Federal Housing National Mortgage Public and Indian Housing for the Community 2015 Administration Association Section 8 Rental Housing Loans and Homeless Elderly and Development Block Financial Statement (Restated) (FHA) (GNMA) Assistance Grants (PIH) Assistance Grants Disabled Grants (CDBG) HOME All Other Eliminations Consolidating PROGRAM COSTS Gross Costs (Note 21) (16,203) (234) 29,482 2,835 1,894 1,037 7,567 1,241 6,071 - 33,690 Less: Earned Revenues (1,849) (1,555) - - (4) (136) - - (29) - (3,573) Net Program Costs (18,051) (1,789) 29,482 2,835 1,890 901 7,567 1,241 6,042 - 30,117 Net Program Costs including Assumption Changes (18,051) (1,789) 29,482 2,835 1,890 901 7,567 1,241 6,042 - 30,117 Costs Not Assigned to Programs - - - - - - - - 218 - 218 Net Cost of Operations (18,051) (1,789) 29,482 2,835 1,890 901 7,567 1,241 6,260 - 30,335 The accompanying notes are an integral part of these statements Figures may not add to totals because of rounding. U.S. Department of Housing and Urban Development Consolidating Statement of Changes in Net Position For the Period Ending September 2016 (Dollars in Millions) Government Public and Federal National Indian Community Housing Mortgage Section 8 Housing Homeless Housing for Development Financial Administration Association Rental Loans and Assistance the Elderly Block Grants Statement (FHA) (GNMA) Assistance Grants (PIH) Grants and Disabled (CDBG) HOME All Other Eliminations Total Net Position - Beginning of Period Funds From Dedicated Collections: - 20,174 - - - - - - 1,243 - 21,417 All Other Funds: 19,046 - - (3) 5 1,538 (0) - 61 - 20,647 Beginning Balances 19,046 20,174 - (3) 5 1,538 (0) - 1,304 - 42,064 Adjustments Changes in Accounting Principles Funds From Dedicated Collections: - - - - - - - - - - - All Other Funds: - - - - - - - - - - - Corrections of Errors Funds From Dedicated Collections: - (5) - - - - - - - - (5) All Other Funds: 835 - - - - - - - - - 835 Beginning Balances, As Adjusted Funds From Dedicated Collections: - 20,169 - - - - - - 1,243 - 21,412 All Other Funds: 19,882 - - (3) 5 1,538 (0) - 61 - 21,482 Total Beginning Balances, as Adjusted 19,882 20,169 - (3) 5 1,538 (0) - 1,304 - 42,894 Other Adjustments (+/-) Funds From Dedicated Collections: - (1) - - - - - - - - (1) All Other Funds: - - - - - - - - - - - Appropriations Used Funds From Dedicated Collections: - - 68 8 6 - - 0 7 - 89 All Other Funds: 3,393 - 30,471 2,913 1,916 904 6,230 1,143 7,401 - 54,372 Nonexchange Revenue Funds From Dedicated Collections: - 2 - - - - - - 3 - 4 All Other Funds: - - - - - 15 - - 186 - 201 Donations and Forfeitures of Cash and Cash Equivalents Funds From Dedicated Collections: - - - - - - - - - - - All Other Funds: - - - - - - - - - - - Transfers-In/Out Without Reimbursement Funds From Dedicated Collections: - - - - - - - - - - - All Other Funds: - - - - - (122) - - - 122 - Other Funds From Dedicated Collections: - - - - - - - - - - - All Other Funds: - - 173 104 37 71 66 24 (475) - - Donations and Forfeitures of Property Funds From Dedicated Collections: - - - - - - - - - - - All Other Funds: - - - - - - - - - - - Transfers-In/Out Without Reimbursement Funds From Dedicated Collections: - - - - - - - - (13) 13 - All Other Funds: 480 - - - - - - - (345) (136) - Imputed Financing Funds From Dedicated Collections: - 1 - - - - - - - - 1 All Other Funds: 15 - - - - - - - 142 - 158 Other Funds From Dedicated Collections: - - - - - - - - 13 - 13 All Other Funds: (2,063) - - - - - - - (107) - (2,170) Total Financing Sources Funds From Dedicated Collections: - 2 68 8 6 - - 0 9 13 107 All Other Funds: 1,825 - 30,644 3,017 1,953 867 6,296 1,167 6,803 (13) 52,560 Total Financing Sources 1,825 2 30,712 3,025 1,959 867 6,296 1,168 6,812 - 52,667 Net Cost of Operations Funds From Dedicated Collections: - 1,216 (68) (8) (6) - - (0) 3 - 1,137 All Other Funds: 18,976 - (30,585) (2,987) (1,956) (865) (6,286) (1,167) (6,580) - (31,451) Net Change Funds From Dedicated Collections: - 1,218 - - - - - - 13 13 1,244 All Other Funds: 20,802 - 59 30 (3) 2 10 0 223 (13) 21,109 Cumulative Results of Operations Funds From Dedicated Collections: - 21,387 - - - - - - 1,256 13 22,655 All Other Funds: 40,683 - 59 27 2 1,540 10 0 283 (13) 42,592 Cumulative Results of Operations 40,683 21,387 59 27 2 1,540 10 0 1,539 - 65,247 Figures may not add to totals because of rounding. 111 U.S. Department of Housing and Urban Development Consolidating Statement of Changes in Net Position For the Period Ending September 2016 (continued) (Dollars in Millions) Government Public and Federal National Indian Community Housing Mortgage Section 8 Housing Homeless Housing for Development Financial Administration Association Rental Loans and Assistance the Elderly Block Grants Statement (FHA) (GNMA) Assistance Grants (PIH) Grants and Disabled (CDBG) HOME All Other Eliminations Total Net Position - Beginning of Period Funds From Dedicated Collections: - 1 3 18 17 - - 5 (363) - (320) All Other Funds: 871 - 10,378 4,550 4,996 2,272 19,991 3,115 5,262 - 51,434 Beginning Balances 871 1 10,381 4,568 5,013 2,272 19,991 3,120 4,898 - 51,114 Adjustments Changes in Accounting Principles Funds From Dedicated Collections: - - - - - - - - - - - All Other Funds: - - - - - - - - - - - Corrections of Errors - Funds From Dedicated Collections: - (1) 15 - - - - - - - 13 All Other Funds: - - (15) - - - - - - - (15) Beginning Balances, as Adjusted - Funds From Dedicated Collections: - - 18 18 17 - - 5 (363) - (306) All Other Funds: 871 - 10,363 4,550 4,996 2,272 19,991 3,115 5,262 - 51,419 Total Beginning Balances, as Adjusted 871 - 10,381 4,568 5,013 2,272 19,991 3,120 4,898 - 51,113 Appropriations Received Funds From Dedicated Collections: - - - - - - - - - - - All Other Funds: 3,437 - 30,249 2,548 2,250 583 3,860 950 7,212 - 51,089 Appropriations Transferred-In/Out Funds From Dedicated Collections: - - 80 - - - - - - - 80 All Other Funds: - - 41 (22) - - (1) - (98) - (80) Other Adjustments (+/-) Funds From Dedicated Collections: - - - (10) (11) - - (5) (2) - (27) All Other Funds: (501) - - (5) (151) (47) (11) (9) (74) - (799) Appropriations Used Funds From Dedicated Collections: - - (68) (8) (6) - - (0) (7) - (89) All Other Funds: (3,393) - (30,471) (2,913) (1,916) (904) (6,230) (1,143) (7,401) - (54,372) Total Budgetary Financing Sources Funds From Dedicated Collections: - - 13 (18) (17) - - (5) (9) - (36) All Other Funds: (456) - (182) (391) 182 (368) (2,382) (202) (362) - (4,161) Total Budgetary Financing Sources (456) - (169) (409) 166 (368) (2,382) (208) (371) - (4,197) Total Unexpended Appropriations Funds From Dedicated Collections: - - 30 0 - - - - (373) - (342) All Other Funds: 415 - 10,182 4,158 5,178 1,905 17,608 2,912 4,900 - 47,257 Total Unexpended Appropriations 415 - 10,212 4,158 5,178 1,905 17,608 2,912 4,528 - 46,915 Net Position Funds From Dedicated Collections: - 21,386 30 0 - - - - 884 13 22,313 All Other Funds: 41,098 - 10,240 4,185 5,180 3,444 17,619 2,912 5,184 (13) 89,849 Net Position 41,098 21,386 10,271 4,185 5,180 3,444 17,619 2,912 6,069 - 112,162 Figures may not add to totals because of rounding. 112 U.S. Department of Housing and Urban Development Consolidating Statement of Changes in Net Position For the Period Ending September 2015 (Restated) (Dollars in Millions) Cumulative Results of Operations Government Public and Federal National Indian Community Housing Mortgage Section 8 Housing Homeless Housing for Development Financial Administration Association Rental Loans and Assistance the Elderly Block Grants Statement (FHA) (GNMA) Assistance Grants (PIH) Grants and Disabled (CDBG) HOME All Other Eliminations Consolidating Net Position - Beginning of Period Funds From Dedicated Collections $ - $ 18,385 $ - $ - $ - $ - $ - $ - $ 1,237 $ - $ 19,621 All Other Funds 3,384 - - (4) - 1,951 1 - 102 - 5,434 Beginning Balances 3,384 18,385 - (4) - 1,951 1 - 1,339 - 25,055 Adjustments Changes in Accounting Principles Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - - - - - - - - - - Corrections of Errors Funds From Dedicated Collections - - - - - - - - (3) - (3) All Other Funds - - - - - - - - - - - Beginning Balances, As Adjusted Funds From Dedicated Collections - 18,385 - - - - - - 1,234 - 19,619 All Other Funds 3,384 - - (4) - 1,951 1 - 102 - 5,434 Total Beginning Balances, As Adjusted 3,384 18,385 - (4) - 1,951 1 - 1,336 - 25,053 Budgetary Financing Sources Other Adjustments (Rescissions, etc) Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - - - - - - - - - - Appropriations Used Funds From Dedicated Collections - - 39 (1) - - 75 2 - - 115 All Other Funds 2,206 - 29,245 2,720 1,850 946 7,423 1,210 7,278 - 52,878 Non-exchange Revenue Funds From Dedicated Collections - - - - - - - - 3 - 3 All Other Funds - - - - - - - - - - - Donations/Forfeitures-Cash and Cash Equivalents Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - - - - - - - - - - Transfers In/Out Without Reimbursement Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - - - - (544) - - 544 - - Other Budgetary Financing Sources Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - 198 116 44 86 69 29 (542) - (0) Other Financing Sources: Donations and Forfeitures of Property Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - - - - - - - - - - Transfers In/Out Without Reimbursement Funds From Dedicated Collections - - - - - - - - - - - All Other Funds 442 - - - - - - - (442) - 0 Imputed Financing From Costs Absorbed From Others Funds From Dedicated Collections - - - - - - - - - - - All Other Funds 15 - - - - - - - 50 - 65 Other Funds From Dedicated Collections - - - - - - - - - - - All Other Funds (4,216) - - - - - - - (663) - (4,879) Total Financing Sources Funds From Dedicated Collections - 1 5 (1) - - 75 2 3 - 86 All Other Funds (1,554) - 29,477 2,836 1,894 488 7,492 1,239 6,225 - 48,096 Total Financing Sources (1,554) 1 29,482 2,835 1,894 488 7,567 1,241 6,228 - 48,182 Net Cost of Operations Funds From Dedicated Collections - 1,788 (39) 1 - - (75) (2) 6 - 1,680 All Other Funds 18,051 - (29,444) (2,835) (1,890) (901) (7,492) (1,239) (6,266) - (32,015) Net Change Funds From Dedicated Collections - 1,789 - - - - - - 9 - 1,797 All Other Funds 16,497 - - 1 4 (413) - - (41) - 16,048 Total All Funds Funds From Dedicated Collections - 20,174 - - - - - - 1,243 - 21,417 All Other Funds 19,881 - - (3) 5 1,538 - - 61 - 21,482 Total All Funds 19,881 20,174 - (3) 5 1,538 - - 1,304 - 42,899 Figures may not add to totals because of rounding. 113 U.S. Department of Housing and Urban Development Consolidating Statement of Changes in Net Position For the Period Ending September 2015 (Restated) (continued) (Dollars in Millions) Unexpended Appropriations Government Public and Federal National Indian Community Housing Mortgage Section 8 Housing Homeless Housing for Development Financial Administration Association Rental Loans and Assistance the Elderly Block Grants Statement (FHA) (GNMA) Assistance Grants (PIH) Grants and Disabled (CDBG) HOME All Other Eliminations Consolidating Net Position - Beginning of Period Funds From Dedicated Collections $ - $ 2 $ 1 $ 17 $ 16 $ - $ 90 $ 7 $ (355) $ - $ (221) All Other Funds 872 - 10,001 4,767 4,853 2,683 24,366 3,432 5,468 - 56,442 Beginning Balances 872 2 10,002 4,784 4,869 2,683 24,456 3,439 5,113 - 56,220 Adjustments Changes in Accounting Principles Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - - - - - - - - - - Corrections of Errors Funds From Dedicated Collections - - - - - - - - - - - All Other Funds - - 574 - - - - - - - 574 Beginning Balances, As Adjusted - Funds From Dedicated Collections - 2 - 17 17 - 90 7 (355) - (222) All Other Funds 872 - 10,575 4,767 4,853 2,683 24,366 3,432 5,468 - 57,016 Total Beginning Balances, As Adjusted 872 2 10,575 4,784 4,870 2,683 24,456 3,439 5,113 - 56,794 Budgetary Financing Sources Appropriations Received Funds From Dedicated Collections - - - - - - - - - - - All Other Funds 2,235 - 29,034 2,523 2,135 555 3,066 900 7,191 - 47,639 Appropriations Transfers In/Out Funds From Dedicated Collections - - 56 - - - - - - - 56 All Other Funds - - - (16) - - - - (40) - (56) Other Adjustments (Rescissions, etc) Funds From Dedicated Collections - (1) - - - - (16) - (7) - (24) All Other Funds (30) - - (4) (142) (20) (18) (7) (80) - (301) Appropriations Used Funds From Dedicated Collections - - (39) 1 - - (75) (2) - - (115) All Other Funds (2,206) - (29,245) (2,720) (1,850) (946) (7,423) (1,210) (7,278) - (52,878) Other Financing Sources: Total Financing Sources Funds From Dedicated Collections - (1) 17 1 - - (90) (2) (7) - (83) All Other Funds (1) - (211) (217) 143 (411) (4,375) (317) (207) - (5,596) Total Financing Sources (1) (1) (194) (217) 143 (411) (4,466) (319) (214) - (5,679) Net Change Funds From Dedicated Collections - 1 18 18 17 - - 5 (363) - (305) All Other Funds 871 - 10,363 4,550 4,996 2,272 19,991 3,115 5,262 - 51,420 Total Unexpended Appropriations 871 1 10,381 4,568 5,013 2,272 19,991 3,120 4,898 - 51,115 Total All Funds Funds From Dedicated Collections - 20,175 18 18 17 - - 5 880 - 21,112 All Other Funds 20,752 - 10,363 4,547 5,000 3,811 19,991 3,115 5,323 - 72,902 Net Position 20,752 20,175 10,381 4,564 5,017 3,811 19,991 3,120 6,202 - 94,014 Figures may not add to totals because of rounding. 114 U.S. Department of Housing and Urban Development Combining Statement of Bundgetary Resources For the Period Ending September 2016 (Dollars in Millions) Total Non Government Public and Government Other Non Budgetary National Indian Community National Budgetary Credit Federal Housing Mortgage Section 8 Housing Homeless Housing for Development Federal Housing Mortgage Credit Program Administration Association Rental Loans and Assistance the Elderly Block Grants Budgetary Administration Administration Program Financing 1 (FHA) (GNMA) Assistance Grants (PIH) Grants and Disabled (CDBG) HOME All Other Total Non Budgetary Non-Budgetary Accounts Accounts Total Budgetary Resources: Unobligated Balance Brought Forward, October 1 16,733 12,873 790 156 2,626 441 9,029 264 1,349 44,260 33,986 1,158 472 35,616 79,876 Adjustments to Unobligated Balance Brought Forward, October 1 - - - - 5 - - - 2 7 (3) - - (3) 4 Unobligated Balance Brought Forward, Oct 1, As Adjusted 16,733 12,873 790 156 2,631 441 9,029 264 1,350 44,267 33,983 1,158 472 35,613 79,880 Recoveries of Prior Year Unpaid Obligations 241 17 126 14 389 40 9 29 175 1,039 463 - - 463 1,502 Other Changes in Unobligated Balance (681) (1) 0 (17) (161) (169) (10) (14) (37) (1,089) - - (0) (0) (1,089) Unobligated Balance From Prior Year Budget Authority, Net 16,293 12,889 916 153 2,859 312 9,027 279 1,489 44,217 34,446 1,158 472 36,076 80,293 Appropriations 3,431 - 30,370 2,529 2,250 583 3,859 950 7,283 51,256 - - - - 51,256 Borrowing Authority - - - - - - - - - - 13,076 - 2 13,078 13,078 Contract Authority - - - - - - - - - - - - - - - Spending Authority From Offsetting Collections 25,010 3,267 - 0 - 369 - - 59 28,705 19,800 2,765 92 22,657 51,362 Total Budgetary Resources 44,734 16,156 31,285 2,682 5,109 1,265 12,886 1,229 8,831 124,178 67,322 3,924 565 71,811 195,989 Status of Budgetary Resources New obligations and upward adjustments (total) Direct 6,976 24 30,357 2,572 2,128 626 4,866 964 6,815 55,328 50,911 - 109 51,020 106,348 Reimbursable - 196 - 2 9 1 - - 8 214 - 3,613 - 3,613 3,827 Subtotal 6,976 219 30,357 2,574 2,137 627 4,866 964 6,823 55,542 50,911 3,613 109 54,633 110,175 Unobligated Balances, End of Year Apportioned, unexpired account 70 81 763 89 2,216 226 7,441 231 1,030 12,147 5,574 114 88 5,776 17,923 Exempt From Apportionment, unexpired accounts - - - - - - - - - - - - - - - Unapportioned, unexpired accounts 37,648 15,851 166 2 195 356 574 2 844 55,639 10,837 197 368 11,402 67,041 Unexpired unobligated balance, end of year 37,718 15,932 928 91 2,412 582 8,015 233 1,874 67,786 16,411 311 456 17,178 84,964 Expired unobligated balance, end of year 40 4 0 18 560 55 6 32 134 850 - - - - 850 Total unobligated balance, end of year (total) 37,758 15,937 928 109 2,972 637 8,021 265 2,008 68,636 16,411 311 456 17,178 85,814 Total Status of Budgetary Resources 44,734 16,156 31,285 2,683 5,109 1,265 12,886 1,229 8,831 124,178 67,322 3,924 565 71,811 195,989 Change in Obligated Balance Unpaid Obligations: Unpaid Obligations, Brought Forward, October 1 565 330 8,902 4,710 2,536 1,964 12,495 3,184 4,617 39,303 2,485 294 2 2,781 42,084 Adjustment to Unpaid Obligations, Start of Year - - - - (5) - - - (3) (8) 3 - - 3 (5) New Obligations and Upward Adjustments 6,976 219 30,357 2,574 2,137 627 4,866 964 6,823 55,543 50,911 3,613 109 54,633 110,176 Outlays (gross) (6,953) (221) (30,231) (2,860) (1,887) (910) (6,015) (1,154) (7,290) (57,520) (50,286) (3,656) (106) (54,048) (111,568) Actual Transfers, Unpaid Obligations - - - - - - - - - - - - - - - Recoveries of Prior Year Unpaid Obligations (241) (17) (126) (14) (389) (40) (9) (29) (175) (1,039) (463) - - (463) (1,502) Unpaid Obligations, End of Year (gross) 346 311 8,902 4,410 2,391 1,642 11,337 2,965 3,973 36,278 2,650 251 5 2,906 39,184 Uncollected Payments: Uncollected Payments, Fed Sources, Brought Forward, Oct 1 (15) - - - - - - - (3) (18) (0) (0) (56) (56) (74) Adjustment to Uncollected Payments, Fed Sources, Start of Year - - - - - - - - - - - - - - - Change in Uncollected Customer Payments, Fed Sources (20) - - - - (1) - - (2) (23) - 0 5 5 (18) Actual Transfers, Uncollected Payments, Fed sources - - - - - - - - - - - - - - - Uncollected Payments, Fed sources, End of Year (35) - - - - (1) - - (5) (41) (0) - (52) (51) (92) Memorandum (non-add) Entries: Obligated Balance, Start of Year 550 330 8,902 4,710 2,531 1,964 12,495 3,184 4,611 39,277 2,488 294 (54) 2,728 42,005 Obligated Balance, End of Year 311 311 8,902 4,410 2,391 1,641 11,337 2,965 3,967 36,237 2,650 251 (47) 2,855 39,092 Budget Authority and Outlays, Net: Budget Authority, Gross (discretionary and mandatory) 28,441 3,267 30,370 2,529 2,250 953 3,859 950 7,342 79,961 32,876 2,765 94 35,735 115,696 Actual Offsetting Collections (discretionary and mandatory) (24,991) (3,381) (0) (1) (1) (369) (1) (0) (81) (28,825) (29,027) (2,766) (97) (31,889) (60,714) Change in Uncollected Customer Payments from Fed sources (discretionary and mandatory) (20) - - - - (1) - - (2) (23) - 0 5 5 (18) Recoveries of prior year paid obligations (discretionary and mandatory) 1 0 0 1 1 0 1 0 24 28 - - - - 28 Anticipated Offsetting Collections (discretionary and mandatory) - - - - - - - - - - - - - - - Budget Authority, Net (discretionary and mandatory) 3,431 (114) 30,370 2,529 2,250 583 3,859 950 7,283 51,141 3,849 0 1 3,851 54,992 Outlays, Gross (discretionary and mandatory) 6,953 221 30,231 2,860 1,887 910 6,015 1,154 7,290 57,520 50,286 3,656 106 54,048 111,568 Actual Offsetting Collections (discretionary and mandatory) (24,991) (3,381) (0) (1) (1) (369) (1) (0) (81) (28,825) (29,027) (2,766) (97) (31,889) (60,714) Outlays, Net (discretionary and mandatory) (18,038) (3,160) 30,231 2,859 1,886 541 6,014 1,154 7,209 28,695 21,259 891 9 22,159 50,854 Distributed Offsetting Receipts (2,000) - (5) - - - - - (297) (2,302) - - - - (2,302) Agency Outlays, Net (discretionary and mandatory) (20,038) (3,160) 30,226 2,859 1,886 541 6,014 1,154 6,912 26,393 21,259 891 9 22,159 48,552 Figures may not add to totals because of rounding. 115 U.S. Department of Housing and Urban Development Combining Statement of Bundgetary Resources For the Period Ending September 2015 (Restated) (Dollars in Millions) Government Government Public and National Total National Indian Community Mortgage Other NonBudgetary Federal Housing Mortgage Section 8 Housing Homeless Housing for Development Federal Housing Association NonBudgetary Credit Program Financial Administration Association Rental Loans and Assistance the Elderly Block Grants Budgetary Administration Non Credit Program Financing Statement (FHA) (GNMA) Assistance Grants (PIH) Grants and Disabled (CDBG) HOME All Other Total Non Budgetary Budgetary Accounts Accounts Eliminations Total Budgetary Resources: Unobligated Balance Brought Foward, October $ 8,152 $ 9,029 $ 736 $ 150 $ 2,460 $ 570 $ 12,177 $ 200 $ 1,255 $ 34,729 $ 45,569 $ 3,751 $ 440 $ 49,760 $ - $ 84,489 Adjustments to Unobligated Balance, Brought Forward, October 1 - (13) - - - - - - - (13) - - - - - (13) Unobligated balance brought forward, October 1, adjusted 8,152 9,016 736 150 2,460 570 12,177 200 1,255 34,716 45,569 3,751 440 49,760 - 84,477 Recoveries of prior year unpaid obligations 50 7 107 26 274 44 24 19 166 716 382 1 14 397 - 1,113 Other changes in unobligated balance (241) (1) - (4) (142) (188) (34) (7) (92) (708) - - - - - (708) Unobligated balance from prior year budget authority, net 7,961 9,022 843 172 2,592 426 12,167 212 1,329 34,724 45,951 3,752 454 50,157 - 84,881 Appropriations (discretionary and mandatory) 2,225 - 29,090 2,507 2,135 555 3,066 900 6,980 47,458 - - - - - 47,458 Borrowing Authority (discretionary and mandatory) - - - - - - - - - - 12,146 - - 12,146 - 12,146 Contract Authority (discretionary and mandatory) - - - - - - - - - - - - - - - - Spending Authority from offsetting collections 21,716 4,247 - - 7 127 - - 62 26,158 25,563 2,817 72 28,452 - 54,610 Total Budgetary Resources $ 31,902 $ 13,269 $ 29,933 $ 2,679 $ 4,735 $ 1,108 $ 15,233 $ 1,112 $ 8,371 $ 108,340 $ 83,660 $ 6,569 $ 526 $ 90,755 $ - $ 199,096 Status of Budgetary Resources: Obligations Incurred Direct 15,170 22 29,143 2,522 2,109 666 6,204 848 7,016 63,700 49,673 - 59 49,732 - 113,433 Reimbursable - 246 - - - - - - 3 249 - 5,538 - 5,538 - 5,787 Subtotal 15,170 268 29,143 2,522 2,109 666 6,204 848 7,019 63,949 49,673 5,538 59 55,271 - 119,220 Unobligated Balances Apportioned 56 128 698 113 2,086 254 9,021 237 523 13,116 3,509 867 102 4,478 - 17,594 Exempt from Apportionment - - - - - - - - - - - - - - - - Unapportioned 16,676 12,873 92 44 540 188 8 27 829 31,275 30,478 164 365 31,007 - 62,282 Subtotal 16,732 13,001 790 157 2,626 442 9,029 264 1,352 44,391 33,987 1,031 467 35,485 - 79,876 Total Status of Budgetary Resources $ 31,902 $ 13,269 $ 29,933 $ 2,679 $ 4,735 $ 1,108 $ 15,233 $ 1,112 $ 8,371 $ 108,340 $ 83,660 $ 6,569 $ 526 $ 90,756 $ - $ 199,096 Change in Obligated Balance Unpaid Obligations: Unpaid obligations, brought forward, Oct 1 587 281 8,865 4,871 2,605 2,303 12,861 3,568 5,147 41,087 2,229 265 17 2,511 - 43,598 Adjustments to unpaid obligations, start of year (+ or -) (Note 28) - 13 - - - - - - - 13 - - - - - 13 Obligations Incurred 15,170 268 29,143 2,522 2,109 666 6,204 848 7,019 63,950 49,673 5,538 59 55,271 - 119,221 Outlays, (gross) (-) (15,142) (202) (28,999) (2,657) (1,904) (962) (6,547) (1,213) (7,383) (65,009) (49,035) (5,532) (59) (54,627) - (119,635) Actual Transfers, unpaid obligations (net) (+ or -) - - - - - - - - - - - - - - - - Recoveries of prior year unpaid obligations (-) (50) (7) (107) (26) (274) (44) (24) (19) (166) (716) (382) (1) (14) (397) - (1,113) Unpaid obligations, end of year (gross) 565 353 8,902 4,710 2,536 1,963 12,494 3,184 4,617 39,324 2,485 271 3 2,758 - 42,082 Uncollected Payments: Uncollected payments, Fed sources, brought forward, Oct 1 (-) (8) - - - - - - - (3) (12) - (2) (51) (53) - (65) Adjustments to uncollected payments, Fed sources, start of year (Note 28) - - - - - - - - - - - - - - - - Change in uncollected customer payments, Fed sources (+ or -) (6) - - - - - - - - (6) - 2 (1) 1 - (5) Actual Transfers, uncollected payments, Fed sources (net) (+ or -) - - - - - - - - - - - - - - - - Uncollected payments, Fed sources, end of year (-) (14) - - - - - - - (3) (18) - (0) (52) (52) - (70) Obligated balance, start of year (+ or -) 577 294 8,865 4,871 2,605 2,303 12,861 3,568 5,144 41,087 2,230 264 (36) 2,458 - 43,544 Obligated balance, end of year (net) $ 550 $ 353 $ 8,902 $ 4,710 $ 2,536 $ 1,964 $ 12,495 $ 3,184 $ 4,612 $ 39,305 $ 2,485 $ 270 $ (50) $ 2,705 $ - $ 42,010 Budget Authority and Outlays, Net: Budget authority, gross (discretionary and mandatory) 23,941 4,247 29,090 2,508 2,141 682 3,066 900 7,039 73,615 37,708 2,817 73 40,598 - 114,213 Actual offsetting collections (discretionary and mandatory) (-) (21,710) (4,361) - - (6) (506) - - (60) (26,642) (38,213) (2,819) (77) (41,108) - (67,751) Change in Uncollected Customer Payments From Fed Sources (Dis and Man) (+ or -) (6) - - - - - - - - (6) - 2 (1) 1 - (5) Anticipated offsetting collections (discretionary and mandatory) (+ or -) - - - - - - - - - - - - - - - - Budget Authority, net (discretionary and mandatory) 2,225 (114) 29,090 2,507 2,135 176 3,066 900 6,980 46,965 (505) - (5) (510) - 46,455 Outlays, gross (discretionary and mandatory) 15,142 202 28,999 2,657 1,904 962 6,547 1,213 7,383 65,009 49,035 5,532 59 54,627 - 119,635 Actual offsetting collections (discretionary and mandatory) (-) (21,710) (4,358) - - (6) (506) - - (60) (26,639) (38,213) (2,819) (77) (41,108) - (67,748) Outlays, net (discretionary and mandatory) (6,568) (4,156) 28,999 2,657 1,898 456 6,547 1,213 7,323 38,368 10,822 2,714 (18) 13,518 - 51,887 Distributed offsetting receipts (2,797) - - - - - - - (47) (2,844) - - - - - (2,844) Agency Outlays, net (discretionary and mandatory) $ (9,365) $ (4,156) $ 28,999 $ 2,657 $ 1,898 $ 456 $ 6,547 $ 1,213 $ 7,276 $ 35,525 $ 10,822 $ 2,714 $ (18) $ 13,518 $ - $ 49,043 Figures may not add to totals because of rounding. 116
Fiscal Years 2016 and 2015 (Restated) U.S. Department of Housing and Urban Development Consolidated Financial Statements Audit
Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-11-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)