oversight

The Office of Native American Programs Section 184 Program Continues To Operate Without Adequate Oversight 3 Years After the Prior OIG Audit

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-08-27.

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

                                            U.S. DEPARTMENT OF
                           HOUSING AND URBAN DEVELOPMENT
                                     OFFICE OF INSPECTOR GENERAL




                                              August 27, 2018
                                                                                              MEMORANDUM NO:
                                                                                                   2018-LA-0801


Memorandum
TO:           Heidi J. Frechette
              Deputy Assistant Secretary, Office of Native American Programs, PN

              //SIGNED//
FROM:         Tanya E. Schulze
              Regional Inspector General for Audit, Los Angeles Region, 9DGA

SUBJECT:      The Office of Native American Programs Section 184 Program Continues To
              Operate Without Adequate Oversight 3 Years After the Prior OIG Audit


                                            INTRODUCTION

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), conducted a review of the Section 184 Indian Home Loan Guarantee program based on a
Senate Appropriations Committee request to review the management and oversight of the
program. OIG had previously audited the Section 184 program in 2015 (audit report 2015-LA-
0002) and determined that the Office of Loan Guarantee (OLG) did not provide adequate
oversight of the program. This resulted in an increased overall risk to the program, including
guaranteeing 3,845 loans totaling more than $705 million that were not underwritten in
accordance with program guidelines. The audit report contained 11 recommendations, of which
10 were closed. The objective of this review was to identify and evaluate actions taken by OLG
since the issuance of the prior audit report, including a review of $2.6 million received for
administrative contract expenses to carry out the Section 184 program.

HUD Handbook 2000.06, REV-4, provides specific timeframes for management decisions on
recommended corrective actions and for recommendations that have been reopened. 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 review.

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.



                                                Office of Audit (Region 9)
                          300 North Los Angeles Street, Suite 4070, Los Angeles, CA 90012
                                      Phone (213) 894-8016, Fax (213) 894-8115
                           Visit the Office of Inspector General website at www.hudoig.gov.
                                   METHODOLOGY AND SCOPE

Our audit period generally covered the period from July 6, 2015 (date of prior OIG audit report
LA 2015-LA-0002 issuance), to May 18, 2018 and includes actions taken by OLG as a result of
the 11 audit recommendations in the prior OIG audit report. The final action target dates for the
agreed upon management decisions ranged from October 30, 2015, to December 31, 2017. We
also reviewed the amounts received and obligated for the Section 184 Indian Housing Loan
Guarantee administrative contract expense fund from fiscal year 2009 to 2018.

We conducted the audit fieldwork from OIG’s Office of Audit in Phoenix, AZ, between May and
July 2018. To accomplish our objective, we

     •   Reviewed the prior OIG audit report (audit report 2015-LA-0002), including the 11 audit
         recommendations addressed to the Office of Native American Programs (ONAP).

     •   Reviewed the 11 management decisions1 submitted by OLG.

     •   Determined the status of the revised Section 184 processing guidelines that were
         submitted by OLG as justification for the closed recommendations.

     •   Determined the status of the draft regulations for the Section 184 program.

     •   Reviewed the standardized monthly delinquency reports provided to OLG by servicing
         lenders.

     •   Reviewed the letters sent from ONAP to 17 lenders regarding the indemnification of 26
         loans that were underwritten by direct guarantee lenders and had material underwriting
         deficiencies.

     •   Reviewed the list of approved direct guarantee underwriters2 and the information in the
         Computerized Homes Underwriting Management System (CHUMS), which is the current
         loan origination system used for the Section 184 program.

     •   Reviewed the documentation submitted by OLG regarding 23 loan files that were
         determined to be missing.

     •   Interviewed appropriate ONAP and OLG management and staff.

We relied on evidence obtained from eCase3 and information provided by ONAP, OLG, and
other HUD headquarters officials. We did not rely on computer-generated data as audit evidence


1
    Management decisions are management’s responses to recommendations, which includes corrective actions
    needed to resolve a recommendation.
2
    A direct guarantee lender is a Section 184 approved lender that may underwrite and close loans before OLG
    issues a loan guarantee certificate.
3
    eCase is the platform used by HUD for its Audit Resolution and Corrective Action Tracking System (ARCATS).




                                                      2
or to support our audit conclusions. We based our conclusions on the source documentation
reviewed during the audit and statements of HUD officials.

                                         BACKGROUND

Under the provisions of Section 184 of the Housing and Community Development Act of 1992
and as amended by the Native American Housing Assistance and Self-Determination Act of
1996, HUD was authorized to guarantee loans made by private lenders to Native Americans,
Indian housing authorities or tribally designated housing entities, and tribes. The Section 184
Indian Home Loan Guarantee program is a home mortgage specifically designed for American
Indian and Alaska Native families, Alaska villages, tribes, or tribally designated housing entities.
Section 184 loans may be used, both on and off native lands, for new construction, rehabilitation,
purchase of an existing home, or refinance.

OLG, within ONAP, guarantees the Section 184 loans. OLG is responsible for oversight,
program development, monitoring and quality control, program training, and marketing.

Participating lenders are entitled to a guarantee covering 100 percent of the outstanding
principal, interest, and reasonable fees on loans made. The Indian Housing Loan Guarantee
Fund was established for the purpose of providing loan guarantees and is funded in part by
annual appropriations from Congress and through a fee paid by borrowers. At the time of the
previous OIG audit, the program had guaranteed 26,247 loans totaling more than $4.26 billion
between 1995 and 2014. As of June 2018, the Section 184 program had guaranteed 41,908 loans
totaling more than $7.01 billion, an increase of 15,661 loans and $2.75 billion in less than 4
years. The figure below shows the loans guaranteed by State as of June 2018.

                        Figure 1 – Section 184 loans guaranteed as of June 2018




The Senate Appropriations Committee report for the fiscal year 2016 appropriations bill (dated
June 25, 2015) requested that HUD submit a report to the House and Senate Committees on
Appropriations on how HUD has used the funding provided for administrative contract expenses,



                                                  3
including management processes and systems. The Senate Appropriations Committee report for
the fiscal year 2017 appropriations bill (dated April 21, 2016) stated that the Committee was
concerned that HUD had failed to submit the report as directed. The Committee noted that HUD
had also failed to use the administrative contract expense fund to address critical systemic
management and oversight shortcomings despite having more than $2.6 million in unobligated
balances for this purpose. Therefore, it requested that OIG review the management and
oversight of the Section 184 program, including related information technology (IT) systems.
HUD submitted the report to Congress on July 28, 2016.

Based on the congressional request, OIG’s Office of Evaluation conducted a separate review of
OLG’s IT systems (2018-OE-0004). The review noted that HUD had not successfully deployed
an IT system that enabled effective management and appropriate oversight of all Section 184
program processes. After spending $4 million on developing the ONAP - Loan Origination
System (LOS)4, the system did not satisfy all management and oversight objectives. The table
below lists the findings from the Office of Evaluation’s review.

                                                Table 1 – IT findings

                         LOS lacked functionality required to process and fully report on all Section
                 1       184 program loans.

                 2       LOS did not have a project plan for needed functionality and capabilities.

                         Only 1 of approximately 38 lenders involved with the Section 184 program
                 3       used LOS due to an internal HUD system access issue.
                         LOS was dependent on a HUD Office of Housing legacy IT system, CHUMS,
                 4       to process Section 184 loans.
                         HUD’s Office of the Chief Information Officer (OCIO), in partnership with
                         the Office of Public and Indian Housing (PIH), successfully deployed the
                 5       initial operating capability of LOS in the HUD Azure cloud environment and
                         was positioned for future development.

                                           RESULTS OF REVIEW

OLG continued to operate without adequate oversight of the Section 184 program. Many of the
issues identified in the prior OIG audit report continued to impact the program 3 years later.
HUD officials inappropriately closed 6 of the 10 closed recommendations from the prior OIG
audit report. The corrective actions for the six agreed upon management decisions were not fully
implemented or completed. One recommendation5 from the prior audit report remained open 3
years after the audit report was issued and past due by 6 months6, and the actions by OLG did not
sufficiently address the recommendations. We also determined that OLG was not able to fully
account for administrative contract expenses; had a nearly $2.3 million unobligated

4
    LOS was developed by a contractor in fiscal year 2017 to replace OLG’s current mortgage origination system.
5
    Recommendation 1A remained open and included closed recommendation 1C, which was closed with the
    commitment by OLG to include in the corrective actions for recommendation 1A policies and procedures for
    claim payment denial due to material underwriting deficiencies.
6
    The original final action target date for corrective action was October 28, 2015, revised to December 31, 2017.




                                                          4
administrative contract expense fund balance; and would primarily use these funds, in addition to
the annual appropriation of up to $750,000, for two contracts that cost approximately $111,000
per year. The table below identifies the reasons why the 6 recommendations were
inappropriately closed.

                           Table 2 – Inappropriately closed audit recommendations

               1B       OLG developed revisions to the Section 184 processing guidelines for four of
                        the recommendations that were inappropriately closed. However, the revisions
               1D
                        were in draft form, had not been implemented, and were not used by OLG.
               1H       HUD officials were aware that the revisions would require departmental
               1I       clearance before the recommendations were inappropriately closed.
                        For two recommendations that were inappropriately closed, the corrective
               1J       actions taken by OLG did not address the recommendation and associated
               1K       management decision.

Since HUD had not taken corrective actions to properly address the audit recommendations in
the 3 years since the issues were identified, the program had been allowed to operate without
adequate oversight, statutory authority, and written internal procedures, increasing the risk of
waste, fraud, and abuse. The lack of internal written policies and procedures would put OLG and
HUD at significant risk in the event of employee turnover (a risk magnified by OLG’s level of
full time employees, nine, with specific program expertise). Additionally, HUD’s actions of
prematurely closing OIG audit recommendations without fully implemented corrective actions
threatened the integrity of the audit resolution process.

Audit Resolution Process

HUD Handbook 2000.06 details the operating procedures for the management system HUD uses
to monitor the implementation of recommendations in audit reports prepared by OIG, the U.S.
Government Accountability Office, or other auditors. The core responsibility for the
implementation of the audit resolution process7 is vested within HUD and its subordinate
headquarters and field program and administrative managers. The figure below describes the
audit resolution process after OIG issues an audit report or memorandum with recommendations.

                                       Figure 2 – Audit resolution process


                                                               Complete, within    Certify that all necessary
    Promptly evaluate     Determine what action, if
                                                               established         corrective actions have been
    recommendations       any, is needed and submit it
                                                               timeframes, all     taken and are supported with
    reported by           to OIG in the ARCATS, via
                                                               actions that        documented evidence, as
    auditors and          eCase. The concurrence of
                                                               correct or          required by the management
    determine proper      the OIG audit report issuer is
                                                               otherwise resolve   decision, and maintain files,
    actions to be         required, and this
                                                               the matters         which include all
    taken in response     concurrence constitutes an
                                                               brought to          documentation evidencing
    to audit              approved management
                                                               management’s        corrective action as required
    recommendations.      decision.
                                                               attention.          by the management decision.



7
    See appendix B for additional details on the audit resolution process required by HUD Handbook 2000.06.




                                                           5
Final action for an OIG-issued recommendation occurs when all actions identified in the
management decision or the revised management decision have been implemented; the action
official, recommendation action official, or point of contact certifies to the completion of all
actions; and the audit liaison officer accepts the certification and closes the recommendation.
Final action should normally occur within 1 year of the original management decision date.

Six Recommendations Inappropriately Closed

HUD officials (former OLG director and audit liaison officer) inappropriately closed 6 of the 10
recommendations from the prior audit report. The corrective actions for the six management
decisions were not fully implemented or completed. ONAP and OLG did not have internal
procedures to ensure that audit resolution was successfully implemented, reviewed, and
completed. For all six of these recommendations, ONAP allowed audit resolution to be largely
handled by the former OLG director without adequate management oversight. Additionally, the
audit liaison officer did not sufficiently review the documents submitted to close the
recommendations. The six recommendations and the related agreed upon management decisions
are listed in the table below.

                       Table 3 – Audit recommendations and management decisions

            Recommendation - Develop and implement policies and procedures for a standardized
            monthly delinquency report format that lenders must follow when submitting information to
            OLG.
            Management decision – Office of Native American Programs (ONAP) agrees and will request
            support from Office of General Counsel - Regulatory Counsel to assist with drafting Servicing
      1B    Regulations that will standardize the data points captured in the monthly Lender Servicing
            Reports. The objective is to collect servicing data in a form that enables HUD to perform data
            analytics to track and predict the loan performance. In the event that OLG cannot obtain a
            regulatory fix, OLG will work with Program Counsel to develop a program notice
            standardizing a loan servicing format.
            Recommendation - Develop and implement policies and procedures to ensure that OLG uses
            enforcement actions available under 12 United States Code (U.S.C.) 1715z-3a(g) for lenders
            that do not underwrite loans according to the Section 184 processing guidelines.
            Management decision - HUD agrees with the finding and Public and Indian Housing (PIH)
            OLG will use the 26 files with deficiencies, identified in the OIG review, as a sample set for
      1D    an internal file review. OLG will develop and implement internal file review policies and
            procedures that provide clear direction for Direct Guarantee (DG) lenders. These policies and
            procedures will outline the enforcement process and remedies available for material
            deficiencies or patterns of errors and omissions. OLG will work with Program Counsel to
            refine and implement policies and procedures to ensure transparency.
            Recommendation - Ensure that only underwriters that are approved by OLG are underwriting
            Section 184 loans.
            Management decision - PIH ONAP OLG agrees with the recommendation. The Section 184
      1H    maintains an approved DG Underwriter list. The current list of DG Underwriters includes
            ninety (90) underwriters. OLG will purge the data currently in CHUMS and replace the data
            with the up to date list of approved DG Underwriters.
            Recommendation - Develop and implement procedures for situations in which the borrower
       1I   for a Section 184 loan is an Indian housing authority, a tribally designated housing entity, or
            an Indian tribe.




                                                       6
               Management decision - PIH-ONAP OLG concurs with this recommendation. ONAP will
               develop and implement additional underwriting criteria for reviewing tribal entities. The goal
               is to align the cash flow review analysis criteria with the procedures and cash flow models
               used during the underwriting process for Title VI loan guarantee transactions, as well as some
               of the best practice factors used for Multi-Family loan packages.
               Recommendation - Reconcile the total list of guaranteed Section 184 loans to the complete
               loan file storage list and identify and locate any missing files.
        1J     Management decision - PIH ONAP OLG agrees with this recommendation and will reconcile
               all Section 184 loan files currently stored at Iron Mountain with the list of guaranteed Section
               184 loans.
               Recommendation – Determine whether any of the loan files were missing because of the
               contracts for loan file storage or data recording, and if so, seek monetary or administrative
               recourse for any contract nonperformance.
               Management decision - PIH has conferred with the Office of the Chief Procurement Officer
               and determined that there was insufficient specificity in the contract to impose monetary
        1K     damages for failing to follow program office instructions that were not spelled out in the
               contract. Attached are a copy of the contract and an email communication of this opinion
               from PIH’s Chief Contract Oversight Officer. PIH ONAP OLG will provide additional
               correspondence received from the PIH Contract Oversight Officer before closure of this
               recommendation.

Recommendation 1B
OLG did not draft servicing regulations or develop a program notice that standardized a loan
servicing format. In the justification to close the recommendation, OLG did not submit
documents that contained policies and procedures for a standardized monthly delinquency report.
OLG did revise chapter 8 of the Section 184 processing guidelines, which included the
requirements for a new standardized monthly delinquency report, but these revisions were
submitted for recommendation 1A and not included as part of the support for closure of
recommendation 1B. Additionally, the revisions were submitted as a draft document, were not
implemented, and did not go through departmental clearance as required by the HUD directives
system8.

Although the revisions to the Section 184 processing guidelines were not implemented, OLG
created a standardized monthly delinquency report format for servicing lenders to use. The
servicing lenders had been submitting the reports, but not all servicing lenders followed the
format or submitted all requested information. We also identified issues with the new servicing
reports provided to OLG, such as no case numbers, incomplete information, and inconsistent
information. Based on the management decision, OLG wanted to collect this information to
perform data analytics to track and predict loan performance. However, if the information was
not consistent or reviewed for accuracy, it might not be able to use the reports for their intended
purpose. OLG was considering adding a servicing component to its new LOS but was not able
to provide details for development or a timeline for implementation.

Recommendation 1D
OLG did not develop and implement internal file review policies and procedures, which outlined
the enforcement process and remedies available for material deficiencies or patterns of errors and
omissions. OLG submitted revisions to chapter 3 of the Section 184 processing guidelines as

8
    Handbook 000.2 REV-3 provides the definition of a directive and states that all directives must be go through
    departmental clearance.




                                                           7
justification to close the recommendation, but these revisions9 were submitted in draft form, were
not implemented, and did not go through departmental clearance as required by the HUD
directives system8. Additionally, the revisions did not outline the procedures OLG would follow
to ensure that it used all enforcement actions available under 12 U.S.C. (United States Code)
1715z-3a(g) for lenders that did not underwrite loans according to the Section 184 processing
guidelines.10 Therefore, OLG did not implement the policies and procedures as stated in the
recommendation.

Recommendation 1H
OLG did not submit documentation to support that the data in CHUMS had been updated based
on the list of approved direct guarantee underwriters. We determined, and HUD officials
confirmed, that CHUMS had not been updated as agreed to in the management decision. During
the audit resolution process, OLG communicated to us that it would update LOS with the list of
approved direct guarantee underwriters; however, the change had not been made at the time of
this review. OLG should develop and implement written policies and procedures to ensure that
CHUMS and LOS, when it is fully implemented and operational, are regularly updated.

OLG also submitted revisions to chapter 9 of the Section 184 processing guidelines during the
audit resolution process. However, these revisions were submitted in draft form, were not
implemented, and did not go through departmental clearance as required by the HUD directives
system8. Additionally, the revisions addressed only the process to become an approved
underwriter, not how OLG would ensure that only underwriters approved by OLG underwrote
Section 184 loans.

Recommendation 1I
OLG submitted revisions to chapter 5 of the Section 184 processing guidelines as justification to
close the recommendation, but these revisions were submitted in draft form, were not
implemented, and did not go through departmental clearance as required by the HUD directives
system8. Therefore, OLG did not implement the policies and procedures as stated in the
recommendation.

Recommendation 1J
OLG did not reconcile all Section 184 loans that were guaranteed with the loan files in storage
with the contractor. The documentation submitted by OLG as justification to close the
recommendation stated that it reconciled only the 122 loans that OIG requested during the 2015
audit. However, the documentation did not support that this action was completed and that the
contractor was not able to locate missing loan files. Of the 122 loans, OLG stated that it was not
able to find 23 loan files.




9
     The revisions were also submitted as support for recommendation 1A.
10
     The enforcement actions available under 12 U.S.C. 1715a-3a(g) include (1) refusing, temporarily or
     permanently, to guarantee any further loans made by a lender; (2) barring a lender or holder from acquiring
     additional loans; (3) requiring lenders or holders to assume not less than 10 percent of any loss on further loans
     made or held; and (4) imposing civil money penalties for intentional violations.




                                                            8
We determined that OLG did not reconcile the 122 loans as stated. It appeared that OLG
attempted to locate the 26 loan files that were included as part of recommendation 1E,11 these
loan files were not missing and were received by OIG during the previous audit. The contractor
responsible for storing the loan files responded to OLG that 10 loan files were not on the
inventory log, which raised further concerns and reinforced the need for completing a
reconciliation of all loans guaranteed to the inventory log maintained by the contractor to
identify missing files.

HUD officials stated that they would change contracts for the storage of documents in fiscal year
2019 and as part of this process, the current contractor and HUD would validate all of the loan
files sent by the contractor and received by HUD. With this process, OLG should be able to
reconcile this information to the total list of guaranteed Section 184 loans and identify any
missing files.

Recommendation 1K
OLG did not submit documentation as justification to close the recommendation to support that
the Office of the Chief Procurement Officer determined that there was insufficient specificity in
the contract to impose monetary damages for failing to follow program office instructions not
spelled out in the contract.

As part of OLG’s response to recommendation 1J, it stated that a contractor that performed data
analysis received all of the loan files from storage and did not return the loan files in the correct
order. This situation resulted in HUD’s inability to locate some loan files. The contract for the
data review and validation was executed in April 2013 and cost approximately $258,000.
However, a HUD official stated that the information provided by the vendor was not used by
OLG. In addition, we noted various issues concerning the inventory log maintained by the
contractor for document storage services, which may have contributed to the missing loan files.
The Office of Procurement and Contracts Services did not recall determining on either contract
(loan file storage and data validation) that there was insufficient specificity in the contracts to
impose monetary damages.

Deficiency for One Recommendation Appropriately Closed

Although recommendation 1E was appropriately closed, based on the plain language
interpretation of the recommendation and management decision language (see table 4 below),
OLG implemented minimal corrective action that did not thoroughly resolve the
recommendation. The documentation submitted to close the recommendation indicated that
OLG sent indemnification requests to 17 lenders for the 26 loans identified in the audit report
that had material underwriting deficiencies. However, the letters did not include indemnification
agreements for lenders to sign, which described the indemnification terms. Part of the
management decision for recommendation 1D stated that OLG planned to use the process used
for the 26 case files for indemnification of loans as a sample set for internal file reviews. There
was an incomplete sample of procedures to follow because sending the letters was only part of
the indemnification process. OLG did not have indemnification agreements or processes for


11
     That OLG request indemnification for the 26 loans that had material underwriting deficiencies




                                                          9
followup and resolution. The recommendation and the related agreed upon management
decision is in the table below.

                           Table 4 – Corrective action taken but deficiencies not resolved

                Recommendation - Request indemnification for the 26 loans that were underwritten by direct
                guarantee lenders and had material underwriting deficiencies. The estimated loss to HUD is
                $2,456,818.
         1E
                Management decision - PIH agrees with the finding and OLG will send a letter addressed to
                the respective lender seeking indemnification on each of the 26 loan files.


One Recommendation Open After 3 Years

Recommendation 1A from the prior audit report remained open 3 years after the prior audit
report was issued and was past due by 6 months.12 Recommendation 1A includes
recommendation 1C, which was closed by HUD officials with OIG’s concurrence because they
stated that it would be included and tracked under recommendation 1A. The two
recommendations and the related agreed upon management decisions are listed in the table
below.

                                          Table 5 – Open recommendations

                Recommendation - Develop and implement written policies and procedures with an emphasis
                on increased controls toward the monitoring, tracking, underwriting, and evaluating of the
                Section 184 program. Implementing these controls would reduce the current high level of risk
                in the program and result in potentially $76,967,618 in funds to be put to better use.
         1A     Management decision - ONAP agrees, and will conduct a comprehensive review of Section
                184 policies and procedures from a “risk management” perspective, updating them as
                necessary. Each area reviewed will result in an update or new policy that specifically
                addresses eligibility and selection criteria, monitoring plans, data quality monitoring,
                performance tracking, risk assessment elements, and ratings.
                Recommendation - Develop and implement policies and procedures to deny payments to
                direct guarantee lenders for claims on loans that have material underwriting deficiencies.

         1C Management decision - OLG agrees, and intends to identify comprehensive policies and
                procedures in the Proposed Management Decision for Recommendation 1A. This provision
                would be included as part of item 2 - Direct Guarantee approval process and monitoring.
                ONAP requests that this action be tracked under Recommendation 1A.


Just before the current audit, OLG stated that it had completed a comprehensive review of its
policies and procedures but was unable to provide documentary support detailing the results of
the review. To resolve recommendation 1A during the audit resolution process, OLG initially
submitted documents, such as revised chapters of its Section 184 processing guidelines,13 for the
closure of recommendation 1A. However, OLG determined that the Section 184 regulations did

12
     The prior report was issued on July 6, 2015, and the original final action target date for corrective action was
     October 28, 2015, revised to December 31, 2017.
13
     Revisions were submitted as draft documents that were not implemented and did not go through departmental
     clearance.




                                                           10
not provide sufficient authority.14 OLG was drafting revised regulations to provide more specific
regulatory authority. OLG consulted with the tribes from February to May 2018 and planned to
publish a proposed rule in the Federal Register by the end of fiscal year 2018. After the
regulations have been completed, OLG planned to revise its Section 184 processing guidelines
based on the enhanced regulations.

Additionally, the revised chapters that were submitted during the audit resolution process did not
address “eligibility and selection criteria, monitoring plans, data quality monitoring, performance
tracking, risk assessment elements, and ratings,” as stated in the agreed-upon management
decision. All of the areas that were agreed to in the management decision would not be
addressed directly in the revised Section 184 processing guidelines as drafted. There should be
“new policy,” as stated in the management decision, for internal use that should address
“eligibility and selection criteria, monitoring plans, data quality monitoring, performance
tracking, risk assessment elements, and ratings.” Also the revised chapters did not outline
procedures OLG would take to deny claim payments to lenders for recommendation 1C.

The prior OIG audit report stated that OLG did not have policies or procedures for selecting and
monitoring lenders. Since the prior audit, OLG had not created internal policies and procedures
for monitoring and evaluating lenders and had started to create policies only after this audit
started. During the audit, a chapter of the Section 184 processing guidelines was provided in
response to a request for current internal procedures for the monitoring of lenders. However, this
chapter was dated 2011 and related only to the quality control plan requirements for lenders to
implement. Further, a HUD official stated that it was not being used because regulations were
being developed for the Section 184 program and detailed policy would be created to implement
the regulations.

OLG had also not changed the procedures for selecting lenders for review and did not use reports
that were available to evaluate the performance of lenders. In selecting lenders, OLG considered
only the loan volume, the office location, and whether lenders had been reviewed previously. No
other risk factors were used to target lenders that potentially posed a risk to the program, such as
the status of loans (for example, defaults and claims). OLG had developed a standardized
monthly report for servicing lenders to report delinquent loans (prior audit recommendation 1B);
however, it was not merged with the loan origination data to identify the performance of lenders.

The prior OIG audit report also noted that from fiscal years 2012 to 2014, only 9 lenders and 36
loans were reviewed from the 10,977 loans that were guaranteed during that timeframe. From
fiscal years 2015 to 2017, we determined that OLG reviewed 10 lenders. Based on the
monitoring reviews, there were two lenders that had outstanding findings so OLG indicated that
a percentage of loans endorsed for these lenders would be selected for a full technical review.
OLG did not take enforcement actions against the lender and did not select a percentage of loans
endorsed for a full technical review because two of the three underwriters were no longer with
the lenders.


14
     OLG stated that HUD’s Office of General Counsel made this determination but confirmed that it was not
     supported by a legal opinion or other legal advice document. Instead, OLG stated that the determination was part
     of a meeting and was made verbally. Therefore, the determination was not available for review during the audit.




                                                         11
For recommendation 1C, the prior OIG audit report stated that OLG denied the claim payment
for one loan because it contained material underwriting deficiencies, but there were no specific
policies and procedures on how to process denials. OLG had not developed or implemented
corrective actions to address this recommendation. The revisions to the Section 184 processing
guidelines did not outline procedures OLG would take to deny claim payments to lenders.

Statutory Authority Needed To Indemnify Loans With Material Underwriting Deficiencies

OLG appropriately closed recommendation 1F based on the plain language of the
recommendation and its actions to request indemnification authority. However, it had not
received the statutory authority to indemnify loans that were not underwritten in accordance with
Section 184 processing guidelines. OLG continued to request statutory authority in its budget
request, most recently for fiscal year 2019. The recommendation and the related agreed upon
management decision is listed in the table below.

                                      Table 6 – Recommendation 1F

            Recommendation - Request specific statutory authority to indemnify loans that are not
            underwritten in accordance with the Section 184 processing guidelines.
            Management decision - OLG has been working with HUD’s Office of Congressional and
      1F    Intergovernmental Relations and through the budgetary process for each of the last 3 years to
            get legislative authority to impose indemnification when loans do not materially comply with
            Section 184 guidelines. The language is also in the fiscal year 2016 legislative package. The
            department continues to request indemnification authority annually; However, Congress has
            not advanced this important legislative action.


Approximately $2.3 Million Unobligated for Administrative Contract Expenses

As part of the Consolidated Appropriations Act, each year, OLG is allowed to use up to
$750,000 of the appropriated amount for administrative contract expenses, including
management processes and systems to carry out the Section 184 program, and these funds are
available until spent. In addition to this annual appropriation, OLG has approximately $2.3
million in its administrative contract expense fund and will use these funds primarily for two
contracts that cost approximately $111,000 per year. OLG did not identify any other contracts or
plans to spend unobligated funds. The table below identifies administrative contract expense
fund balances for fiscal years 2009, to 2018.




                                                     12
                                Table 7 – Administrative contract expense balances

                                         Allotted             Obligated            Unobligated
                    Fiscal year
                                        amount15              amount16              balance
                        2009              $350,000                    $0              $350,000
                        2010               350,000               400,000               300,000
                        2011               348,500               431,630               216,870
                        2012               350,000                   180               566,690
                        2013               710,770               493,554               783,906
                        2014               750,000               298,809             1,235,097
                        2015               750,000               264,903             1,720,194
                        2016               750,000               242,102             2,228,092
                        2017               750,000             1,440,702             1,537,390
                        2018               750,000                      0            2,287,390

HUD stated that the funds allotted for administrative contract expenses were used to fund
contracts for OLG. Since fiscal year 2015, it appeared that OLG had used the funds for four
contracts and an interagency agreement, but we were not provided documentation to verify this
information. OLG was also not able to provide specific line item details to support what
expenditures were paid from the administrative contract expense fund. OLG was able to provide
only an overview of obligations and expenditures. Starting in fiscal year 2019, OLG will use the
administrative contract expense fund for only two contracts (credit subsidy rate and subscriptions
for database search engines) and a short-term contract for document storage services as it
transitions to a new contract that will not be funded by OLG. Below are the four contracts and
the interagency agreement for OLG since fiscal year 2015.

      •   An interagency agreement with the Office of the Chief Information Officer (OCIO) for
          the development of OLG’s new LOS to replace the current system. OLG transferred $1
          million to OCIO in fiscal year 2017 to help develop the system, and OCIO funded the
          remaining amount of the contract. OCIO was also funding the operations and
          maintenance of the contract, costing $903,000 per year. Since fiscal year 2016, OLG and
          OCIO had jointly spent $3.53 million17 on LOS development and implementation and
          planned to spend an additional $351,365 through fiscal year 2018.

          The development of LOS began after the 2015 audit.18 With the new system, lenders
          would be able to enter loan origination information directly into the system, which would
          allow OLG to use its resources for other areas of need. With the current system, OLG
          staff enters loan origination information into the system for lenders because the lenders
          do not have access. However, the new system had not been fully implemented, did not


15
     The allotted amounts are based on the end of year amounts for each fiscal year. For fiscal year 2018, the allotted
     amount is as of June 11, 2018.
16
     The obligated amounts are as of April 30, 2018.
17
     OLG and OCIO have spent $3.53 million to date.
18
     OIG’s Office of Evaluation conducted a separate review of this system. See background section for more details
     on the Office of Evaluation’s IT review.




                                                           13
          have a servicing component, lacked a thorough reporting feature, and was being used by
          only one lender.

      •   A contract for underwriting support to review loan files submitted for loan guarantee
          certificates. The contract was executed in fiscal year 2015 for a 3-year period for a total
          of $501,540 (or an average of $167,180 per year). HUD officials stated that the contract
          would end at end of fiscal year 2018 and would not be renewed due to the planned
          implementation of the new origination system. HUD officials expressed concern that if
          there was a delay in implementing LOS, there could be a backlog of loan endorsements
          because there would be no support from this contract.
      •   A contract for document storage services. The contract was executed in fiscal year 2015
          for a period of 3 years for a total of $168,520 (or an average of $56,173 per year). HUD
          officials stated that the contract would expire at the end of fiscal year 2018 and they will
          transition to a new contract with a government agency for document storage services.19

      •   A contract for credit subsidy modeling services. The contract has a total cost of $299,250
          over a 3-year period (or $99,750 per year). HUD officials stated that this contract was an
          ongoing contract for OLG and was needed every year.

      •   A contract for subscriptions to database search engines. The contract was executed in
          fiscal year 2015 for a period of 5 years for a total of $56,052 (or an average of $11,210
          per year).

Given the oversight and control issues identified in this audit memorandum, the prior OIG audit
report, and OIG’s Office of Evaluation’s IT review, OLG should take steps to ensure that
unobligated administrative contract expense funds are more fully used toward enhancing and
increasing its capacity to monitor, track, and evaluate the Section 184 program internally and
externally.

OLG Staffing Needs and Changes

ONAP indicated its priority to review the Section 184 program and reorganized OLG leadership
early in 2018 with a new deputy director and reassignment of the previous director. OLG was
staffed by nine HUD employees, made up of one deputy director and eight support staff
members (two outstationed in HUD field offices). The OLG director position remained vacant.
OLG was similarly staffed at the time of the prior OIG audit; 11 HUD employees made up of 1
director and 10 support staff members. (Two support staff members left the program soon after
OIG initiated the prior audit.) During interviews for the current audit, OLG and ONAP
leadership and support staff overwhelmingly indicated the need for additional staff. As stated
above, OLG had a contract for staffing support that totaled $501,540 over 3 years. Support staff
members worked in cross-functional capacities to fulfill the mission of the Section 184 program.
OLG should consider additional leadership and support staff as appropriations permit.




19
     The new contract will not be funded by OLG’s administrative contract expense fund.




                                                        14
                                               CONCLUSION

The prior OIG audit report, 2015-LA-0002, determined that OLG did not provide adequate
oversight of the Section 184 program. We determined that OLG continued to operate the
program without adequate oversight 3 years after the prior report was issued, was not able to
fully account for administrative contract expenses, and had a nearly $2.3 million unobligated
administrative expense fund balance. Our review of the actions taken as a result of the
recommendations from the prior audit report determined that OLG inappropriately closed 6 of
the 10 closed recommendations and 1 recommendation20 remained open and was past due. OLG
disregarded our audit recommendations and did not provide adequate oversight, allowing audit
resolution to be handled largely by one employee without adequate management oversight. OLG
did not have formal procedures or processes for implementing the audit resolution process.
Despite statements to the contrary, HUD did not sufficiently review the documents submitted to
close the audit recommendations. OLG recognized its policy shortcomings and had determined
the need for additional statutory and regulatory authority, which were in the draft stage, to
implement revised policies and procedures that would address the prior audit recommendations.

                                          RECOMMENDATIONS

Based on the cited deficiencies, we will reopen the six recommendations from OIG audit 2015-
LA-0002 that were inappropriately closed (1B, 1D, 1H, 1I, 1J, and 1K) until corrective action is
fully developed and implemented. We will also reopen recommendation 1C, which was closed
and moved to recommendation 1A, to ensure that it is properly tracked and addressed.

In addition, we recommend that HUD’s Deputy Assistant Secretary for the Office of Native
American Programs

          1A.     Develop and implement internal policies and procedures to ensure that approved
                  underwriters are accurately maintained and kept current in the origination systems
                  for the Section 184 program.

          1B.     Develop a comprehensive plan to continue to seek indemnification statutory
                  authority, including consideration to include indemnification authority language
                  in draft regulations currently being considered. Until statutory authority is
                  obtained, develop and implement internal policies and procedures for the
                  voluntary indemnification process, to include a voluntary indemnification
                  agreement, followup procedures, and resolution procedures. Procedures should
                  be revised once statutory authority is obtained.

          1C.     Develop and implement internal ONAP and OLG policies and procedures for the
                  audit resolution process, complementing HUD Handbook 2000.06, to include
                  management oversight and review of documents prepared and submitted to


20
     Recommendation 1A remains open and also includes closed recommendation 1C, which was closed with the
     commitment by OLG to include in the corrective actions for recommendation 1A policies and procedures for
     claim payment denial due to material underwriting deficiencies.




                                                        15
      evidence that corrective actions have been adequately developed and fully
      implemented.

1D.   Support line item expenditures for the administrative contract expense fund for
      fiscal years 2015 to 2018. OLG should repay the U.S. Department of the
      Treasury for any expenditures that cannot be supported.

1E.   Develop and implement policies and procedures, coordinating with other program
      offices as needed, to track and make administrative contract expense fund
      expenditures readily available for review.

1F.   Develop and implement a comprehensive plan to use unobligated administrative
      contract expense funds.

1G.   Consider adding additional OLG staff, including a full time director to provide
      additional leadership and management oversight.




                                      16
Appendix A
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 1




Comment 1




                              17
Ref to OIG
Evaluation




Comment 1




Comment 1

Comment 2




Comment 1



Comment 1




             18
Ref to OIG
Evaluation




Comment 3




Comment 1




Comment 4


Comment 5

Comment 6




             19
Ref to OIG
Evaluation




Comment 7




Comment 8




Comment 9




             20
Ref to OIG
Evaluation




Comment 10




Comment 11




Comment 12




             21
Ref to OIG
Evaluation




Comment 13




Comment 4




             22
                         OIG Evaluation of Auditee Comments


Comment 1   We acknowledge that the Office of Native American Programs (ONAP) will
            address the six re-opened and seven new recommendations in more detail when
            submitting the proposed management decisions. We note that ONAP provided
            comments on the seven new recommendations in its response. Our evaluation can
            be found in the comments below.

            We also acknowledge and appreciate ONAP’s efforts with respect to reducing the
            claims backlog, drafting revised Section 184 regulations, internal policies and
            procedures, improving loan data, and improving records storage. ONAP should
            ensure it provides the relevant support for those areas that address the re-opened
            and new audit recommendations during the audit resolution process.

Comment 2   ONAP stated it was advised by HUD’s Office of General Counsel that new
            regulations must be in place in order to issue new policies and procedures through
            Public and Indian Housing (PIH) notices; however, the Office of Loan Guarantee
            (OLG) could have developed new written internal policies and procedures based
            on the deficiencies noted in prior OIG audit report 2015-LA-0002. For example,
            for recommendation 1D, OLG could have developed new written internal
            operating procedures that outlined the procedures it would follow to ensure that is
            used all of the enforcement actions available under 12 U.S.C. 1715z-3a(g) for
            lenders that did not underwrite loans according to the Section 184 processing
            guidelines. Also, for recommendation 1A, which remains open, OLG could have
            developed new written internal operating procedures for monitoring, tracking, and
            evaluating lenders. The prior audit report specifically stated that OLG did not
            have policies and procedures for selecting and monitoring lenders. As this audit
            report memorandum states, OLG had not created internal policies and procedures
            for monitoring and evaluating lenders and had started to create policies only after
            this audit started.

Comment 3   ONAP stated that its administrative funds balance is high, in part, because
            beginning in fiscal year 2013 it requested upwards of $700,000 to procure a
            license to an off-the-shelf virtual mortgage processing software platform.
            However, we note that OLG has maintained an unobligated balance of
            approximately $1.2 million to $2.3 million from fiscal year 2014 to 2018 and
            requested $750,000 in funding for all of those years. The unobligated balance
            also takes into account the $1.0 million committed for the Section 184 Loan
            Origination System (LOS) in fiscal year 2017. As stated in recommendation 1F,
            we recommended ONAP develop and implement a comprehensive plan to use
            unobligated administrative contract expense funds. This would include ONAP’s
            statement that it anticipates to use the unobligated administrative funds balance
            towards supporting additional phases of the LOS.




                                            23
Comment 4   ONAP agreed that OLG needs additional staff despite having limited staffing
            resources. However, they requested that recommendation 1G be addressed to the
            HUD deputy secretary, citing disagreement if the recommendation is not
            addressed above the ONAP deputy assistant secretary level. We acknowledge the
            staffing difficulties cited by ONAP in its response, however, the recommendation
            states to “consider” adding additional staff, including a full-time director. The
            recommendation remains unchanged as it is ONAP and OLG’s responsibility to
            coordinate with senior level HUD management above the ONAP deputy assistant
            secretary to further explore the potential for adding staff, including a full time
            director.

Comment 5   We disagree with ONAP’s assertion that PIH Notices 2014-11 and 2014-22
            contain policies on how to deny claim payments to lenders. The audit
            memorandum states there were no specific policies and procedures on how to
            process denials for loans that contained material underwriting deficiencies. PIH
            Notice 2014-11 only states that OLG reserves the right to deny payment on a
            guarantee request that is not complete. Also, PIH Notice 2014-22 does not
            address the denial of claim payments. OLG should develop internal written
            policies and procedures that outline the procedures it will take to deny claim
            payments to lenders and the situations in which denial of claim payments would
            occur.

Comment 6   ONAP disagreed with OIG’s characterization that six of the recommendations
            from audit report 2015-LA-0002 were improperly closed by HUD officials. The
            conclusion on the closed audit recommendations was made based on available
            documentation obtained during the audit that indicated HUD officials improperly
            closed the questioned recommendations. As stated in HUD Handbook 2000.06,
            REV-4, it is the responsibility of the action official, the recommendation action
            official, or the point of contact to certify that all actions have been taken in
            accordance with the agreed-upon management decision and that all supporting
            documentation evidencing final action has been obtained. It is also the
            responsibility of the audit liaison officer that there is sufficient evidence to
            demonstrate that the corrective actions have actually occurred before closing the
            audit recommendations. For the reasons stated in this audit memorandum, the
            prior audit recommendations were closed in a manner that did not adhere to HUD
            Handbook 2000.06, REV-4.

Comment 7   We strongly disagree with ONAP’s statement that the administrative officer of the
            OIG Los Angeles Field Office and the audit team had access to all documents and
            explanations submitted and either affirmatively or at least tacitly concurred on
            each recommendation closure. We note that ONAP did not provide support for its
            statement but we do acknowledge that the documents and explanations submitted
            by the former OLG director and audit liaison officer were accessible by OIG.
            However, the documents were only accessible to OIG after the recommendations
            were closed. The questioned prior audit recommendations were closed by OLG




                                            24
            and the audit liaison officer, not by OIG. OIG neither affirmatively nor tacitly
            concurred with the closure of the questioned prior audit recommendations.

            HUD Handbook 2000.06, REV-4 states that OIG evaluates the effectiveness of
            the Audits Management System by conducting periodic audits and Corrective
            Active Verifications on selected recommendations. Although this audit was
            initiated based on a Senate Appropriations Committee request, it served the same
            purpose of a Corrective Action Verification since the OIG previously conducted
            an audit of the Section 184 program in 2015. Corrective Action Verifications are
            intended to be a quality control process over the Audits Management System. It
            is through these processes that OIG identified prior audit recommendations that
            were improperly closed.

Comment 8   ONAP stated it disagreed with recommendation 1A if it is not removed because
            they believe it is duplicative of the re-opened recommendation 1H of audit report
            2015-LA-0002. We disagree the recommendation is duplicative.
            Recommendation 1H from audit report 2015-LA-0001 recommended ONAP to
            ensure that only underwriters that are approved by OLG are underwriting Section
            184 loans. Recommendation 1A from this audit memorandum recommends
            ONAP ensure that approved underwriters are accurately maintained and kept
            current in the originations systems for the Section 184 program. While the initial
            management decision for recommendation 1H did state that OLG would replace
            the data in CHUMS with an up to date list of approved DG underwriters, a new
            management decision will be required for the re-opened recommendation.
            Recommendation 1H does not specifically address maintaining an accurate roster
            of approved underwriters and does not specifically include OLG’s recently
            implemented Section 184 Loan Origination System. Therefore, we added
            recommendation 1A to ensure the issues pertaining to approved underwriters are
            fully captured.

Comment 9   ONAP stated it disagreed, without removal or conditioning, with recommendation
            1B because its resolution will direct limited staff and resources to an act of futility
            because there is no statutory authority at this time for indemnification of loans.
            We acknowledge that OLG does not currently have specific statutory authority for
            indemnification of loans and has included indemnification language in its budget
            requests. However, we disagree developing policies and procedures for
            indemnification is an act of futility. Indemnification and other enforcement
            actions are critical components of a successful loan guarantee program. Although
            OIG has not seen the draft regulations referred to by ONAP, we strongly believe
            that indemnification authority should be part of any regulation put forward by
            ONAP and OLG.

            As stated in the prior audit report, the current statutes do not prohibit OLG from
            requesting indemnification agreements from direct guarantee lenders that
            originated a loan with material underwriting deficiencies. The requirements at 12
            U.S.C. 1715z-13a(c)(4) state that HUD may establish defenses against the




                                              25
              originating lender in cases of fraud or misrepresentation and establish regulations
              creating partial defenses to amounts payable on the loan guarantee. Until it
              receives specific statutory authority, OLG could use voluntary indemnification
              agreements as part of a settlement action based on the remedies that are available.
              OLG agreed to request indemnification for the 26 loans that were identified in the
              prior audit report that had material underwriting deficiencies; however, the letters
              that were sent to lenders did not include indemnification agreements for lenders to
              sign. Such agreements would have described the indemnification terms and
              allowed for lender agreement (signature). This occurred because OLG did not
              have indemnification agreements or processes for followup and resolution.
              Recommendation 1B was revised accordingly.

Comment 10 ONAP stated it disagreed with recommendation 1C if it is not removed or
           reworded because they believe it is duplicative (procedures already exist under
           HUD Handbook 2000.06, REV-4) and is an unnecessary burden with limited staff
           and limited resources. We acknowledge there are existing established policies
           and procedures for the audit resolution process under HUD Handbook 2000.06;
           however, given the significant deficiencies identified in this audit memorandum
           pertaining to audit recommendation closure, we strongly believe ONAP and OLG
           need to develop internal policies and procedures, complementary to HUD
           Handbook 2000.06. Internal policies and procedures would allow for a
           formalized internal process specific to ONAP and OLG, including management
           oversight and review to ensure corrective actions for OIG audit recommendations
           are adequately developed and fully implemented prior to closure. The
           recommendation remains and was revised only to clarify internal policies and
           procedures should be complementary to HUD Handbook 2000.06.

Comment 11 ONAP stated it disagreed with recommendation 1D if it is not removed or revised
           because support for the line item expenditures for the administrative contract
           expense fund are the responsibility of Office of Public and Indian Housing, Office
           of the Chief Information Officer, or the Office of Chief Procurement Officer.
           While we agree ONAP and OLG works with other program offices in maintaining
           its funding details, we disagree they have no responsibility. The administrative
           contract expense funds were appropriated to carry out the loan guarantee program
           (Section 184 program). As the office overseeing the Section 184 program, they
           have a significant and distinct responsibility to have full knowledge of the
           program’s funding details. This responsibility includes being able to track,
           maintain, and easily identify program costs. ONAP and OLG should take the
           necessary steps to ensure it is able to support how the funds were expended. The
           recommendation remains and was not revised.

Comment 12 ONAP stated it disagreed with recommendation 1E if it is not removed or revised
           because it has little control over the administrative contract expense fund and the
           function of tracking and making administrative contract expense fund
           expenditures readily available for review belong to other offices in HUD. As
           stated in comment 10, ONAP and OLG are the oversight offices of the Section




                                               26
              184 program. As such, they have a responsibility to ensure they are adequately
              informed of program expenditures. They should have controls in place to track
              and have the documentation for the expenditures readily available for review.
              ONAP and OLG should coordinate with other involved program offices to ensure
              adequate policies and procedures are in place so that administrative contract
              expense funds are tracked, monitored, and easily identified. The recommendation
              remains and was only revised to include language that ONAP coordinate with
              other offices as needed.

Comment 13 We agree with ONAP’s request that recommendation 1F be revised to allow for
           ONAP and OLG to make appropriate obligation decisions. The recommendation
           was reworded so as to not direct the program office how to specifically allocate its
           funding.




                                              27
Appendix B
                                           Criteria

HUD Handbook 2000.06, REV-4, Section 1-6, General Standards for Management
Decisions and Final Actions
   A. Timing. The Department has established a goal for achieving a management decision
       within 120 calendar days so that any impasses can be satisfied prior to the federal
       requirement that management decisions be in place by 180 days after report issuance. A
       management decision is required on all recommendations in an audit report within 6
       months (180 days) after the report is issued. The Department’s goal for completion of
       final action is 1 year from the management decision date. However, when large amounts
       of disallowed costs are to be recovered by HUD or the program on an installment basis,
       the Department’s goal is to have all costs recovered within 3 years. Final action could
       occur simultaneously with the management decision if the management decision can be
       made and the required corrective actions completed within 120 calendar days after
       issuance of an audit report.

    B. Documentation. Management decisions and final actions shall be supported in
       ARCATS [Audit Resolution and Corrective Action Tracking System] and supplemented
       by appropriate documentation so that the AMS [Audit Management System] status of
       each audit report and its controlled recommendations can readily be determined. An
       electronic Final Action Certification (FAC) in ARCATS is required for all final actions
       that are not closed by the OIG or where the OIG has requested that the ALO [audit
       liaison officer] close the recommendation. ALOs will not close audit recommendations
       without the certification from the responsible AO [action official], RAO
       [recommendation action official], or POC [point of contact] as designated in ARCATS.

    C. Management Decision. A proposed management decision occurs when the AO
       evaluates the recommendations in the audit report and determines what action, if any, is
       needed and submits it to the OIG in ARCATS. The concurrence of the OIG audit report
       issuer is required on OIG-issued recommendations and this concurrence constitutes an
       approved management decision. Proposed management decisions provided for OIG
       concurrence must include:

          1. A final action target date;

          2. Details on the types of documentation that will be used to evidence that final
             action is completed;

          3. A Program POC;

          4. Projections of any savings (FPTBU) [funds to be put to better use] or amounts to
             be repaid (disallowed questioned costs) to HUD or program participants that will
             result from implementation of corrective actions, as applicable; and

          5. A description of the actions to be taken.



                                              28
      Any changes to the corrective actions necessary, projections of any savings, amounts to
      be repaid (i.e. amounts disallowed), or the types of documentation to be used to evidence
      final action are considered revised management decisions. These changes must be
      submitted to the OIG through ARCATS and concurred on by the OIG report issuer before
      management can consider the recommendation as having a revised management decision.

  D. Final Action. Final action for an OIG issued recommendation occurs when all actions
     identified in the management decision (action plan) or the revised management decision
     have been implemented, the AO, RAO, or POC certifies to the completion of all actions,
     and the ALO accepts the certification and closes the recommendation. Final action
     should normally occur within 1 year of the original management decision date.

      The AO, RAO, and POC is responsible for monitoring progress, documenting completion
      of the final action, forwarding the evidence to provide closure, as specified in the
      management decision, to the ALO within the target date. For an OIG recommendation to
      be considered as having final action, all actions required by the management decision or
      revised management decision must be completed. Additionally, the AO, RAO, or POC
      must certify in ARCATS that all necessary corrective actions have been taken and all
      necessary documentation has been obtained in accordance with the management decision
      that was concurred on by the OIG. If a recommendation contains disallowed costs, the
      amounts shall be recovered, adjusted, or forgiven before the recommendation can be
      considered to have final action for AMS purposes.

HUD Handbook 2000.06, REV-4, Section 4-3, Duties and Responsibilities
  B. The ALO’s responsibilities include the following:

         1. Serving as the contact point for all inquiries concerning the status of
            recommendations during the various stages of the AMS process;

         2. Maintaining and providing technical assistance and training for AMS and
            ARCATS for their program area;

         3. Entering and updating ALO comments in ARCATS for all open
            recommendations in their program area that are overdue or need a status update;

         4. Ensuring that the required status reports are provided to the OIG report issuer
            and AO or HPOH [headquarters primary organization head];

         5. Working with management, and when necessary OIG, to ensure that
            management decisions are reached timely;

         6. If a management decision is not obtained within the 120-day Departmental goal,
            negotiating/coordinating with OIG to ensure the recommendations are referred
            to upper management for resolution;




                                              29
           7. Working with management, and when necessary OIG, to ensure that action
              plans are implemented within the final action target dates;

           8. Coordinating with OIG the need to recode recommendations to under judicial,
              legislative, and investigative review;

           9. Informing senior management of systemic or specific problems preventing
              timely implementation of action plans;

           10. Reviewing final action target date extension requests for action plans that are
               within 1 year of the original management decision and updating ARCATS to
               reflect the extension granted including the rationale;

           11. Coordinating with staff the necessary documentation needed to address each
               action plan;

           12. Reviewing the supporting documentation to ensure compliance with the agreed
               upon management decision;

           13. Providing a detailed analysis of what corrective action is needed to complete the
               requirements of the action plan if the submitted documentation does not
               adequately address it, as contained in the OIG’s approved management
               decision’s Evidence to Provide Closure Section.

           14. If the submitted documentation adequately addresses the action plan: a)
               directing the AO, RAO, or POC to submit the FAC in ARCATS; b) receiving
               the FAC in ARCATS; c) reviewing the certification package; and d) if
               appropriate, closing the recommendation in ARCATS to reflect that final action
               has been taken.

HUD Handbook 2000.06, REV-4, Section 5-8, Closing Recommendations
Final action occurs when all corrective actions, including recovery and/or forgiveness of
disallowed costs, is completed. The date of the ALO’s acceptance of the final action
certification and closure of the recommendation in ARCATS is the date of the final action,
except when the OIG closes a recommendation at the time the audit was issued.

   A. AO, RAO, and POC Responsibilities. The AO, RAO, or POC should obtain and review
      supporting documentation to ensure all action has been completed either through the
      review of documentation submitted, on-site review, or a combination of both. The AO,
      RAO, or POC shall certify in ARCATS that all actions have been taken in accordance
      with the management decision concurred on by the OIG and that all documentation
      evidencing final action has been obtained. The AO, RAO, or POC must forward to the
      responsible ALO the documentation evidencing final action taken on OIG-issued
      recommendations for purposes of closing the recommendation in ARCATS.




                                                30
   B. ALO Responsibilities. Before recording the closure of a recommendation in ARCATS,
      the responsible ALO should take care to assure that all documentation of final action has
      been provided including the final action certification from the AO, RAO, or POC. The
      ALO must have sufficient evidence to demonstrate that the corrective actions have
      actually occurred before closing an audit recommendation (i.e. journal entries, copies of
      checks, copy of new procedure, etc.). The general rules on final action certification
      packages are as follows:

           1. Keep paper to a minimum (e.g., only get the table of contents, or the section that
              shows the policy was updated, not the whole manual), and whenever possible
              provide electronic copies in lieu of paper, ensuring that there is reasonable
              documentation for third-party review;

           2. Statements that the corrective actions have been observed are fine and either
              written or emailed statements are acceptable; or

           3. The ALO will use their judgment to decide what is needed based upon the
              management decision; however, such documentation should be clear enough that
              anyone reviewing closure will understand and agree with the decision to close.

HUD Handbook 2000.06, REV-4, Section 5-9, Repeated and Reopened Recommendations
Subsequent audits may contain the same deficiency and recommendation as a prior audit, or the
CAV [Corrective Action Verification] may conclude that the recommendation has not been
implemented. If it is found that a recommendation had not been implemented, the OIG will
reopen the recommendation and it will be tracked using the previous report. Only new
recommendations (i.e., those that were not in the prior report) will be tracked using the current
report. Once a recommendation has been reopened, the OIG shall enter a new final action target
date that is 45 days from the date it is reopened. The AO should propose a revised management
decision through ARCATS to the OIG within 30 days and then follow the usual audit follow-up
procedures.




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