oversight

HUD Did Not Always Ensure That Grantees Maintained the Required Depository Agreements for Investing Program Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-08-13.

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

   Office of Native American Programs,
             Washington, DC
      Indian Housing Block Grant Program Investments




Office of Audit, Region 9      Audit Report Number: 2018-LA-0004
Los Angeles, CA                                   August 13, 2018
To:            Heidi J. Frechette, Deputy Assistant Secretary, Office of Native American
               Programs, PN

               //SIGNED//
From:          Tanya E. Schulze, Regional Inspector General for Audit, 9DGA
Subject:       HUD Did Not Always Ensure That Grantees Maintained the Required Depository
               Agreements for Investing Program Funds


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s Office of Native American Programs’
Indian Housing Block Grant program.
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 website. 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
213-534-2471.
                    Audit Report Number: 2018-LA-0004
                    Date: August 13, 2018

                    HUD Did Not Always Ensure That Grantees Maintained the Required
                    Depository Agreements for Investing Program Funds



Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) Office of Native
American Programs’ Indian Housing Block Grant program. We selected the program based on
concerns as to whether grantees invested, obligated, and spent program funds within the required
period. Our audit objective was to determine whether HUD’s Office of Native American
Programs ensured that grantees invested, obligated, and spent program funds within HUD’s
required time limits.

What We Found
HUD generally ensured that grantees obligated, spent, and invested program funds within HUD’s
required time limits in fiscal years 2015, 2016, and 2017. However, for two of six grantees
reviewed, HUD did not always ensure that the grantees maintained the required depository
agreements to invest program funds in investment securities for use in carrying out affordable
housing activities. We attributed this condition to a weakness in HUD’s internal control, which
included relying on the grantees to maintain the required depository agreements. In addition, its
Indian Housing Block Grant Recipient Self-Monitoring Guidebook included an expired
requirement for investing program funds. As a result, HUD did not fully ensure that all grantees
maintained the required depository agreements to allow them to invest program funds for
affordable housing activities, and the expired guidance in the Guidebook put grantees at risk of
not complying with current requirements to meet program objectives.

What We Recommend
We recommend that the Deputy Assistant Secretary of the Office of Native American Programs
(1) obtain the required depository agreements for two grantees to ensure that they invest program
funds in investment securities for use in carrying out affordable housing activities, (2) strengthen
monitoring controls to ensure that current and future grantees maintain the required depository
agreements before allowing them to invest program funds, and (3) update HUD’s Indian Housing
Block Grant Recipient Self-Monitoring Guidebook to replace the expired requirements with the
latest requirements to ensure that grantees remain compliant with requirements for investing
program funds.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: HUD Did Not Always Ensure That Grantees Maintained the Required
         Depository Agreement for Investing Program Funds ................................................... 5

Scope and Methodology ...........................................................................................8

Internal Controls ....................................................................................................10

Appendixes ..............................................................................................................11
         A. Auditee Comments and OIG’s Evaluation ............................................................. 11
         B. Criteria ....................................................................................................................... 19




                                                                     2
Background and Objective
The U.S. Department of Housing and Urban Development (HUD), Office of Native American
Programs, administers housing and community development programs that benefit American
Indian and Alaska Native tribal governments, tribal members, the Department of Hawaiian
Home Lands, Native Hawaiians, and other Native American organizations. The role of the
Office of Native American Programs is to ensure that safe, decent, and affordable housing is
available to Native American families; create economic opportunities for tribes and Indian
housing residents; assist tribes in forming plans and strategies for community development; and
assure fiscal integrity in the operation of the programs.
The Indian Housing Block Grant is a formula grant, which provides a range of affordable
housing activities on Indian reservations and areas. The block grant approach to housing for
Native Americans was enabled by the Native American Housing Assistance and Self-
Determination Act of 1996. To receive funding, eligible grantees must submit to HUD an Indian
housing plan each year. At the end of each year, grantees must submit to HUD an annual
performance report on their progress in meeting the goals and objectives in their plans.
In addition, grantees may use program funds for the purposes of carrying out affordable housing
activities in the form of investment securities and other obligations. The grantees must be
approved by HUD to invest and may continue to invest program funds as long as they continue
to demonstrate their administrative capacity to HUD. For fiscal years 2015 through 2017, HUD
awarded more than $408 million in program funds to 371 grantees. The table below shows the
amount of program funds obligated, spent, and invested by these grantees during the fiscal years
reviewed.

              Fiscal year        Program funds           Program funds           Program funds
                                   obligated                 spent2                 invested3
                  2015            $23,361,583             $37,447,951             $44,159,243
                  2016            198,304,850             115,161,630             319,669,515
                  2017            186,666,329             365,790,075             493,530,441

Grantees must use HUD’s required depository agreement to begin investing program funds for
bank accounts or for brokers and dealers. These agreements ensure that grantees’ invested
program funds are held in one or more accounts separate from other funds of the grantees. Also,
these agreements provide assurance that grantees may invest program funds only in the
following: obligations of the United States; obligations issued by United States Government-

1
  HUD stated that some field offices did not officially store investment data until fiscal year 2016. However, some
field offices entered data for fiscal year 2015.
2
  The amount spent includes program funds carried over from previous fiscal years outside our review period. As a
result, this amount is greater than the amounts obligated in fiscal years 2015 through 2017.
3
  The amount invested includes program funds carried over from previous fiscal years outside our review period. As
a result, this amount is greater than the amounts obligated in fiscal years 2015 through 2017.



                                                         3
sponsored agencies; securities that are guaranteed or insured by the United States; mutual funds
registered with the Securities and Exchange Commission, which invest only in obligations of the
United States; or securities that are guaranteed or insured by the United States.

Our audit objective was to determine whether HUD’s Office of Native American Programs
ensured that grantees invested, obligated, and spent program funds within HUD’s required time
limits.




                                                4
Results of Audit

Finding: HUD Did Not Always Ensure That Grantees Maintained
the Required Depository Agreement for Investing Program Funds
HUD generally ensured that grantees obligated, spent, and invested program funds within HUD’s
required time limits in fiscal years 2015, 2016, and 2017. However, for three of six grantees
reviewed, HUD did not always ensure that the grantees maintained the required depository
agreements to invest program funds in investment securities for use in carrying out affordable
housing activities. We attributed this condition to a weakness in HUD’s internal control, which
included relying on the grantees to maintain the required depository agreements. In addition,
HUD’s Indian Housing Block Grant Recipient Self-Monitoring Guidebook included an expired
requirement for investing program funds. As a result, HUD did not fully ensure that all grantees
maintained the required depository agreements to allow them to invest program funds for
affordable housing activities while complying with current program requirements.

HUD Generally Ensured That Grantees Obligated, Spent, and Invested Program Funds
Within the Required Time Limits
HUD generally ensured that the six sampled grantees obligated, spent, and invested program
funds within HUD’s required time limits. HUD had written investment regulations. Office of
Public and Indian Housing (PIH) Notice 2015-08 (appendix B) allows grantees to invest program
funds for a period of up to 5 years. HUD did not have written regulations requiring grantees to
obligate and spend program funds within a certain period. Instead, HUD relied on the grantees
to provide Indian housing plans; quarterly Standard Form (SF)-425 reports; and annual
performance reports, which were required to be be submitted within the designated period, to
monitor obligated, spent, and invested program funds each year.

Grantees are required to identify their planned activities with the intended outcomes in the
housing plans and submit these plans to HUD for approval at least 75 days before the beginning
of each program year in accordance with 24 CFR (Code of Federal Regulations) 1000.216
(appendix B). In addition, grantees must show the disbursements made for all activities in the
quarterly SF-425 reports, including investment activities, and submit these reports to HUD
within 30 days after the end of each quarter as required by PIH Notice 2012-23, paragraph 6(a)
(appendix B). Also, grantees are required to submit their performance reports to HUD to show
accomplishments in meeting the planned activities within 90 days after the end of each program
year in accordance with 24 CFR 1000.514 (appendix B). Overall, HUD provided the housing
plans, quarterly SF-425 reports, and performance reports for the six sampled grantees, which
generally met the time requirements for submitting required documents to ensure that program
funds were obligated, spent, and invested during fiscal years 2015, 2016, and 2017.




                                               5
HUD Did Not Always Ensure That Grantees Maintained the Required Depository
Agreements
HUD did not ensure that three of the six sampled grantees maintained the required depository
agreements used to invest program funds as required by PIH Notice 2014-21, section 4
(appendix B), and PIH Notice 2015-08, section 7 (appendix B). Specifically, HUD did not
ensure that the three sampled grantees had executed and maintained the required depository
agreements before investing program funds. The table below shows the results of the six
sampled grantees.

                                                                        Did HUD ensure the
                       Name of grantee                                 grantee maintained the
                                                                       depository agreement?
    Kenaitze Salamatof Tribally Designated Housing Entity                        No
                Akwesasne Housing Authority                                     Yes
                 Fort Peck Housing Authority                                    No4
              Yakama Nation Housing Authority                                   Yes
                      Wyandotte Nation                                           No
              Northern Circle Housing Authority                                 Yes

After we completed our fieldwork, HUD took corrective actions by providing two retroactively
approved depository agreements for Fort Peck Housing Authority to show compliance. This
action occurred after we brought this issue to HUD’s attention. As a result, HUD did not ensure
that the two grantees maintained the required depository agreements, which allowed them to
invest program funds in investment securities for use toward affordable housing activities.

Also, HUD’s Indian Housing Block Grant Recipient Self-Monitoring Guidebook investment
section included an expired requirement. Specifically, the Guidebook referenced the use of PIH
Notice 99-4 for administrative requirements for investing program funds. However, this HUD
notice expired on February 28, 2000. The current administrative requirements for investing
program funds are in PIH Notice 2015-08 and should be included in the Guidebook. Without the
updated requirement, grantees are at risk of not complying with current program requirements
for investing program funds for affordable housing activities.

We attributed this condition to a weakness in HUD’s internal control related to depository
agreements. Specifically, HUD relied on the grantees to maintain the required depository
agreements without ensuring that such documents were in place. In addition, HUD’s Indian
Housing Block Grant Recipient Self-Monitoring Guidebook included an expired requirement,
which grantees followed. As a result, HUD did not fully ensure that the grantees maintained the
required depository agreements to allow them to invest program funds for affordable housing
activities.



4
  On May 15, 2018, HUD executed two depository agreements for Fort Peck Housing Authority to invest program
funds.



                                                      6
Conclusion
HUD generally ensured that grantees obligated, spent, and invested program funds within HUD’s
required time limits for fiscal years 2015, 2016, and 2017. However, HUD did not always
ensure that the grantees maintained the required depository agreements to invest program funds
in investment securities for use in carrying out affordable housing activities. We attributed this
condition to a weakness in HUD’s internal control, which included relying on the grantees to
maintain the required depository agreements. In addition, HUD’s Indian Housing Block Grant
Recipient Self-Monitoring Guidebook included an expired requirement for investing program
funds. As a result, HUD did not fully ensure that all grantees maintained the required
agreements to allow them to invest program funds for affordable housing activities while
complying with current program requirements.
Recommendations
We recommend that the Deputy Assistant Secretary of the Office of Native American Programs
        1A.      Obtain the required depository agreements for two5 grantees to ensure that they
                 invest program funds in investment securities for use in carrying out affordable
                 housing activities in accordance with PIH Notices 2014-21, section 4, and 2015-
                 08, section 7.
        1B.      Strengthen monitoring controls to ensure that current and future grantees maintain
                 the required depository agreements before allowing them to invest program funds
                 in investment securities for use toward affordable housing activities.

        1C.      Update HUD’s Indian Housing Block Grant Recipient Self-Monitoring
                 Guidebook to replace the expired requirement for investing program funds with
                 PIH Notice 2015-08 and ensure that the Guidebook is updated with the latest
                 requirements to ensure that grantees remain compliant with program
                 requirements.




5
 On July 24, 2018, HUD provided depository agreements for one of two grantees identified in the report.
Specifically, HUD provided us the agreement for Wyandotte Nation after our July 20th exit conference. We
determined the agreement was complete and in compliance with HUD requirements. As a result, there is still one
grantee, Kenaitze Salamatof Tribally Designated Housing Entity, who did not maintain the required depository
agreement. HUD can provide the document for the grantee during the audit resolution process.



                                                        7
Scope and Methodology
We performed our audit work from our office in Los Angeles, CA, between March and May
2018. Our audit covered the period October 1, 2014, through September 30, 2017.

To accomplish our objective, we

    •    Reviewed applicable laws and regulations, including Federal regulations and HUD
         notices, guidebooks, and forms.

    •    Reviewed HUD’s program policies and procedures related to monitoring obligated, spent,
         and invested program funds.

    •    Conducted interviews with relevant HUD officials.

    •    Reviewed grant agreements, Indian housing plans, annual performance reports, quarterly
         SF-425 reports, investment policies, depository agreements, and annual single audit
         reports for the selected sample grantees.

The universe consisted of 37 grantees that invested Indian Housing Block Grant program funds,
for which they obligated more than $408 million, spent between $37 and $365 million, and
invested between $44 and $493 million during the fiscal years beginning October 1, 2014, and
ending September 30, 2017. We selected a nonstatistical6 random sample of six grantees
representing 16 percent of the universe.

We randomly selected one grantee from each of the six Office of Native American Programs
field offices, which resulted in more than $39 million in program funds obligated, between $3
and $38 million in funds spent, and between $3 and $40 million in funds invested for fiscal years
2015 through 2017. The range of amounts spent and invested included program funds carried
over from previous fiscal years outside our review period. This sampling method did not allow
us to project to the universe, but it was sufficient to meet the audit objective.

We relied on computer-processed data provided by HUD in the form of Microsoft Excel funding
logs primarily for determining the audit universe and selecting a sample of grantees for testing.
We performed a minimal level of testing and found the data to be sufficiently reliable to meet the
audit objective and for the intended use of the data.




6
  A nonstatistical sample is appropriate when the auditor knows enough about the population to identify a relatively
small number of items of interest. The results of procedures applied to items selected under this method apply only
to the selected items and must not be projected to the portion of the population that was not tested.



                                                          8
We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                9
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

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

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

•   Effectiveness and efficiency of program operations – Policies and procedures that
    management has implemented to reasonably ensure that a program meets its objectives.
•   Compliance with applicable laws and regulations – Policies and procedures that management
    has implemented to reasonably ensure that resource use is consistent with laws and
    regulations.
•   Validity and reliability of data – Policies and procedures that management has implemented
    to reasonably ensure that valid and reliable data are obtained, maintained, and fairly
    disclosed in reports.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   HUD did not have adequate controls in place to ensure that all grantees maintained the
    required depository agreements to allow them to invest program funds for affordable housing
    activities (finding).




                                                  10
Appendixes
Appendix A
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2




                               11
Comment 3




Comment 4



Comment 5




Comment 6




            12
Comment 7




            13
Comment 8




            14
Comment 9




            15
Comment 10




             16
                         OIG Evaluation of Auditee Comments

Comment 1   We appreciate that HUD provided comments on the draft audit report. We have
            taken HUD’s comments into consideration.

Comment 2   We agree with HUD that investments may be for a period of no longer than five
            years in accordance with HUD regulations 24 CFR 1000.58(g). However, during
            a meeting with HUD on April 10, 2018, HUD stated that there were no written
            regulations to require grantees to obligate and spend program funds within a
            certain period. In addition, we acknowledge HUD’s concerns about the
            conclusion that HUD had no assurance that grantees maintained the required
            agreements. As a result, we revised our conclusion in the audit report from “HUD
            had no assurance” to “HUD did not fully ensure…”

Comment 3   We agree with HUD that grantees must be a self-governance Indian tribe or have
            the administrative capacity and controls to responsibly manage the investment in
            accordance with HUD regulations 24 CFR 1000.58(b)(2). However, we disagree
            with HUD that it would be an unrealistic expectation to ensure grantees always
            maintain the required depository agreements and would be contrary to the
            statutory language which recognizes this program as a self-governance program.
            According to PIH Notice 2014-21, Section 4, if a recipient is approved to invest
            program funds in accordance with 24 CFR 1000.58, a depository agreement form
            HUD-52736-A for banking accounts or form HUD-52736-B when using brokers
            and dealers is required. Therefore, the grantees must execute and maintain the
            required forms prescribed by HUD before allowing them to invest in program
            funds. During fiscal years 2015 through 2017, only 37 grantees invested program
            funds for which HUD could have ensured that all grantees executed and
            maintained the required depository agreements. As a result, these grantees must
            comply with HUD requirements when administering Federal program funds. In
            addition, HUD must ensure that all grantees are complying with HUD
            requirements, meeting program objectives, and safeguarding Federal program
            funds.

Comment 4   We acknowledge HUD’s concerns about the conclusion. As a result, we revised
            the conclusion in the audit report from “HUD had no assurance” to “HUD did not
            fully ensure…”

Comment 5   We appreciate that HUD is ensuring that grantees maintain the required records of
            depository agreements in accordance with HUD regulations 24 CFR 1000.552(b).
            However, we disagree that our review neglects to include all the measures HUD
            implements to ensure compliance with investments requirements. During a
            meeting on May 10, 2018, HUD stated that they were not able to provide some
            documents, such as investment ledgers and records. HUD also emphasized that
            some of the documents were not readily available and grantees would charge
            program funds for time spent to collect the documents for our review. As a result,



                                             17
             we adjusted our review based on the documents that HUD made available to us
             during our review.

Comment 6    We acknowledge HUD’s ensuring that grantees approved to invest program funds
             have the required depository agreements by establishing at least two checks to
             monitor for compliance. Even though HUD established two checks to monitor for
             compliance, it does not ensure all 37 grantees maintained the required depository
             agreements. Since there were only 37 grantees that invested program funds, HUD
             could have ensure that all grantees executed and maintained the required
             depository agreements. We also acknowledge HUD’s concern about the last
             sentence in the conclusion of the draft audit report. However, we disagree with
             HUD’s request to remove the last sentence in the conclusion. Instead, we revised
             the last sentence in the conclusion of the audit report from “HUD had no
             assurance that grantees maintained the required agreements” to “HUD did not
             fully ensure that all grantees maintained the required agreements.”

Comment 7    We appreciate that HUD provided the required depository agreements for one of
             two grantees. We acknowledge HUD’s effort in taking corrective actions in
             addressing recommendation 1A. HUD can provide the remaining depository
             agreement to us during the audit resolution process.

Comment 8    We appreciate that HUD has agreed to for revise the Grants Evaluation
             Guidebook to strengthen its monitoring controls to ensure that current and future
             grantees meet program requirements to invest program funds and address
             recommendation 1B. HUD can provide evidence of its actions during the audit
             resolution process.

Comment 9    We appreciate that HUD has agreed to take corrective action to update its Self-
             Monitoring Guidebook with the current PIH Notice 2015-08 to address
             recommendation 1C. HUD can provide evidence of its actions during the audit
             resolution process.

Comment 10 We appreciate that HUD provided comments on the draft audit report. We look
           forward to the continued cooperation during the audit resolution process.




                                              18
Appendix B
                                             Criteria

The following sections of PIH Notices 2012-23, 2014-21, and 2015-08 and 24 CFR Part 1000
were relevant to our audit of HUD’s Indian Housing Block Grant program.

PIH Notice 2012-23, Paragraph 6(a)
Federal Financial Report, SF-425:
An IHBG [Indian Housing Block Grant] recipient must submit the SF-425 to the Area Office of
Native American Programs (ONAP) within 30 calendar days of the end of each quarter. Line of
Credit Control Systems (LOCCS) will automatically generate a letter 15 days before the end of
each quarter, to remind the grant recipient to submit the SF-425. The Area ONAP is responsible
for entering into LOCCS the receipt date of the form, using the “Receipt of Outstanding
Document” screen. If the Area ONAP does not acknowledge receipt of the SF-425 in LOCCS
within 30 calendar days after the end of the quarter, LOCCS will automatically notify the grant
recipient that the report is overdue.

PIH Notice 2014-21, Section 4, Indian Housing Block Grant (IHBG) Investments
If a recipient is approved to invest IHBG funds in accordance with 24 CFR 1000.58 a Depository
Agreement form HUD-52736-A for banking accounts or form HUD-52736-B when using
brokers and dealers is required.

PIH Notice 2015-08
This notice establishes the basis upon which the Department [HUD] will determine if a recipient
of IHBG funds has the administrative capacity to drawdown program funds for investment
purposes as authorized under Section 204(b) of the Native American Housing Assistance and
Self-Determination Act. The IHBG regulations were amended December 3, 2012 and effective
January 2, 2013 in 2013 to allow for a 5-year investment period.

PIH Notice 2015-08, Section 7, Depository Agreement
Invested IHBG funds must be held in one or more accounts separate from other funds of the
recipient. Each of these accounts must be subject to a Depository Agreement approved by HUD.
PIH Notice 2014-21 Depository Agreements for Investing and Administering IHBG Funds,
includes the current Depository Agreement forms to be used when investing IHBG funds (Form
HUD-52736-A for investment held in bank accounts and Form HUD-52736-B for investment
managed by brokers and dealers). The notice also clarifies investment options available under
24 CFR 1000.58 and special requirements applicable to reserve accounts.

24 CFR 1000.216
If the Indian Housing Plan (IHP) is not initially sent by at least 75 days before the beginning of
the tribal program year, the recipient will not be eligible for IHBG funds for that fiscal year.




                                                  19
Any funds not obligated because an IHP was not received before this deadline has passed shall
be distributed by formula in the following year.

24 CFR 1000.514
The Annual Performance Report (APR) must be submitted within 90 days of the end of the
recipient’s program year. If a justified request is submitted by the recipient, the Area ONAP
may extend the due date for submission of the APR.




                                                20