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
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)