oversight

Risk Assessment of HUD's Grant Closeout Process

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-27.

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




                                     September 27, 2018

                                                                     MEMORANDUM NO:
                                                                          2018-NY-0801


Memorandum

TO:           Irving L. Dennis, Chief Financial Officer, F
              Henry Hensley, Director, Office of Strategic Planning and Management, X

              //SIGNED//
FROM:         Kimberly S. Dahl, Regional Inspector General for Audit, 2AGA

SUBJECT:      Risk Assessment of HUD’s Grant Closeout Process


                                     INTRODUCTION

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General
(OIG), has completed a risk assessment of HUD’s grant closeout process as required by the
Grants Oversight and New Efficiency (GONE) Act of 2016, Public Law 114-117.

Our objective was to determine whether an audit or review of HUD’s grant closeout process was
warranted. We found that a moderate risk was associated with HUD’s grant closeout process
and recommend that a full audit be performed in fiscal year 2019.

This memorandum does not contain recommendations. We will use the risk assessment to
determine the scope of the audit of HUD’s grant closeout process.

                             SCOPE AND METHODOLOGY

Our assessment period generally covered January 2016 through June 2018. We performed our
assessment work from July through August 2018 at our office located in Newark, NJ.

To accomplish our objective, we
    reviewed applicable laws and regulations;
    reviewed HUD’s policies, procedures, and memorandums;
    interviewed HUD officials;
    reviewed HUD’s November 2017 GONE Act report; and
    analyzed the grant data used for HUD’s November 2017 report and June 2018 update.
To achieve our objective, we relied in part on grant data provided by HUD from its Financial
Data Mart.1 As shown in the table below, the data included 186,306 grant records as of
November 2017 and 5,571 grant records as of June 2018.

                                                         Records in GONE Act           Records in GONE Act
                                                        data as of November 2017        data as of June 2018
                      HUD office
                                                         # of grants     Balance       # of grants     Balance
    Office of Community Planning and Development               31,934   $49,082,088          5,289    $28,936,286
    Office of Fair Housing and Equal Opportunity                4,287       570,488              9        607,125
    Office of Housing                                             909        44,240            125         44,240
    Office of Lead Hazard Control and Healthy Homes             1,024         5,650              0              0
    Office of Policy Development and Research                   1,539             0            135              0
    Office of Public and Indian Housing                       146,613    20,885,083             13         17,696
                         Totals                               186,306    70,587,549          5,571     29,605,347

We used the data for background information and to determine whether HUD’s November 2017
report was supported. To test the reliability of the data, we used a data analysis tool to identify
potential discrepancies in each file and between the files. We identified several concerns with
the data, as noted in the Results of Review section below. However, we found that the data were
sufficient to achieve our objective of determining whether an audit or review of HUD’s grant
closeout process was warranted.

We used U.S. Government Accountability Office government auditing standards, issued January
2012, section 6.15a-g as guidance to help us determine the risk levels used in this memorandum.

                                                BACKGROUND

On January 28, 2016, President Obama signed the GONE Act, Public Law 114-117. The Act
required Federal agencies to report open Federal grant and cooperative agreement awards with
periods of performance that had been expired for at least 2 years and take appropriate action to
close them out in accordance with regulations at 2 CFR (Code of Federal Regulations) 200.16
and 200.343. Section 2(a)(1) of the Act required agencies to submit an initial report to Congress
and the Secretary of Health and Human Services not later than December 31, 2017. Further,
section 2(c) required that the Inspector General of an agency with more than $500 million in
annual grant funding, such as HUD, conduct a risk assessment to determine whether an audit or
review of the agency’s grant closeout process was warranted.

In November 2017, HUD submitted its initial GONE Act report, which showed that it had the
largest number of open grants of all Federal agencies and the 30 oldest open awards. HUD is
required to submit an update of its progress in closing these grants in November 2018.



1
    Financial Data Mart is a warehouse of data extracted from a variety of HUD’s financial systems and supported by
    a number of query tools for the purpose of improved financial and program data reporting. It is the primary
    reporting tool used to generate internal ad-hoc reports, scheduled event-driven reports, and queries.



                                                          2
According to regulations at 2 CFR 200.343, agencies are required to close out the Federal awards
once they have determined that all applicable administrative actions and all required work under
the award have been completed by the non-Federal entity. To implement the GONE Act
requirements and close out grants with expired periods of performance, HUD’s Office of the
Chief Financial Officer (OCFO), Office of Strategic Planning and Management, and six other
offices2 collaborated. OCFO developed policies and procedures to address the open grants
identified in the November 2017 report. Further, it issued memorandums to program offices in
April, June, and July 2018, discussing its plans and progress toward meeting the GONE Act
requirements.

This memorandum summarizes the results of our risk assessment of HUD’s grant closeout
process.

                                              RESULTS OF REVIEW

We found moderate risks associated with HUD’s grant closeout process. The following sections
discuss these risks in detail.

Risk Related to Grant Data
As discussed below, we identified several concerns with the November 2017 and June 2018 data
provided by HUD.
          Duplicate records - The data provided to support the 186,306 open grants disclosed in
           November 2017 contained 14,893 duplicate records. Further, the June 2018 grant data
           listed 5,571 open grants and contained 124 duplicate records.
          New records - While HUD stated that the June 2018 data showed which grants from the
           November 2017 data were still open, it contained 114 records not listed in the November
           2017 data.
          Grant records that did not meet GONE Act criteria - HUD informed us that the
           November 2017 report incorrectly included grants that did not meet GONE Act reporting
           criteria. For example, more than 26,000 of the 31,934 Office of Community Planning
           and Development grants included in the report should not have been included for various
           reasons, including that some grants were still within their performance period.
As a result, HUD did not have assurance that its data were accurate and complete, and it could
not ensure the accuracy of its reporting related to the GONE Act.

Risk Related to HUD’s Policies and Guidance
We identified several concerns with HUD’s policies and guidance related to the GONE Act. For
example,
          The memorandum issued by OCFO in April 2018 stated that it planned to unilaterally
           close all zero-balance grants with a period of performance ending in fiscal year 2015 and
           earlier. While it provided program offices with opportunities to provide input to keep
           them open, the timeframes to provide input were short. Specifically, it provided program

2
    See the offices listed in the table on page 2.



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          offices 2 weeks to determine whether there were any grants with periods of performance
          ending in fiscal year 2010 and earlier that could not be closed and stated that OCFO
          would start closing these grants 3 days after the deadline. Closing grants unilaterally is a
          concern for several reasons, including that program offices may not have completed all
          administrative requirements as required by 2 CFR 200.343 and various HUD
          requirements. By requiring program offices to note only which grants should not be
          closed, HUD took away the need for program offices to confirm that each grant should be
          closed. It could also create differences in HUD’s financial systems. In June 2018, OCFO
          issued an updated memorandum that removed the language about unilaterally closing
          grants and stated that it would execute financial closeout of the grants based on
          certifications from program offices stating that applicable program-specific grant
          closeout requirements had been completed. However, 179,703 of the 186,306 grants
          were closed out or removed before the June 2018 updated memorandum, which also did
          not indicate whether HUD would revisit those grants to ensure that program-specific
          grant closeout requirements were followed before OCFO closed the grants.

         Program offices did not have sufficient policies and procedures. The grant data used for
          the November 2017 report involved six program offices and dozens of programs. As of
          August 2018, it appeared that HUD did not have closeout policies and procedures for all
          of the programs and had not provided sufficient guidance to field offices. For example,
          the Office of Community Planning and Development issued policies for certain
          Community Development Block Grants for States and for Emergency Solutions Grants
          and Continuum of Care Program grants, and it provided training to field office staff.
          However, no guidance had been developed for other program grants, including those
          awarded under the non-State Community Development Block Grant, Housing
          Opportunities for Persons With Aids, and HOME Investment Partnerships programs.
          Further, some field offices contacted were unaware of the GONE Act and the current
          grant closeout procedures.

Risk Related to the Volume of Grants Involved and the Speed With Which They Were Closed
We identified concerns related to the volume of grants involved and the speed with which they
were closed. According to HUD’s November 2017 report, there were 186,306 open grants with
more than $70.5 million subject to the GONE Act based on their performance ending date, and
HUD had the highest number of open grants when compared to other Federal agencies. Further,
the June 2018 data contained more than 180,000 fewer records than the November 2017 data, or
less than 3 percent of the original records, and its total balance was more than $40 million lower.
While some records may have been removed because they were not subject to the GONE Act or
because they were duplicates, as discussed in the section above about the grant data, a significant
number of these 180,000 represent grants that were closed over 7 months.

Closing a large number of grants in such a short period is concerning, given the issues noted with
HUD’s policies and procedures, especially for grants subject to lengthy closeout procedures. For
example, the grant closeout procedures for the Public Housing Capital Fund3 program require a

3
    The Capital Fund program is one major component of HUD’s public housing programs. Capital funds provide
    annual formula grants to public housing agencies for development, financing, and modernization of public
    housing developments and management improvements.



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preaudit review, a final performance and evaluation report, submission and approval of a cost
certificate, and a postaudit review before the grants can be closed, and these steps can take
several months or years. While we cannot say exactly how many Capital Fund program grants
were closed out during the 7 months, the June 2018 data for the Office of Public and Indian
Housing contained more than 146,000 fewer records than the November 2017 data, and its total
balance was more than $20 million lower.

HUD stated that it was able to close a large number of grants quickly because they had already
been closed out administratively and noted that a significant number of the records were
removed because they should not have been included in its November 2017 report. However, as
of August 2018, it had not provided details or documentation showing how many grants were
included in each of these categories.

Risk Related to Improper Deobligation of Grant Funds Identified
We identified concerns related to the deobligation of funds by HUD headquarters in preparation
of grant closeout. At least one grant was improperly deobligated when HUD was trying to meet
the GONE Act requirements, and we believe there is a risk that this error occurred with other
grants as well. According to local field office staff, the grant’s ending performance date was in
September 2018, but HUD headquarters’ data listed it as September 30, 2013. HUD
headquarters believed the grant should have been closed out and deobligated the $229,167
balance without informing the responsible field office, while the funded activities were ongoing.
It took several months for HUD field office and headquarters staff to identify the issue and
restore the funding. In reviewing the grant data provided by HUD headquarters, we noted that
this grant was listed as having a zero balance in November 2017 and the balance was then
increased in the June 2018 data, which corresponds to the information provided by the field
office. Further, we noted that there were 15 additional grants with zero balances in the
November 2017 data and positive balances in the June 2018 data. Therefore, it is possible that
additional grants were improperly deobligated in 2017 and later restored. HUD acknowledged
that some grants had incorrect performance ending dates in its data and stated that it had been
updating the information in its financial systems and developing procedures to automate the
process.

                                        CONCLUSION

We identified several risks related to HUD’s grant closeout process and compliance with the
GONE Act. As a result, we plan to perform a full audit in fiscal year 2019. This memorandum
does not contain recommendations.




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                          Appendix A

             Auditee Comments and OIG’s Evaluation


Ref to OIG
              Auditee Comments
Evaluation




Comment 1




Comment 2

Comment 3


Comment 4




                              6
Ref to OIG
Evaluation   Auditee Comments




Comment 4


Comment 5




Comment 6




                            7
                        OIG Evaluation of Auditee Comments
Comment 1   HUD stated that the April 2018 memorandum was a draft that went through the
            departmental clearance process and that the June 2018 memorandum was the
            final version it issued. It noted that OIG nonconcurred with its April 2018
            memorandum’s proposal to unilaterally close the grants and that it removed that
            language to ensure that OIG lifted the nonconcurrance. Last, HUD stated that
            OCFO did not close any grants without program office sign-off. We agree that
            HUD updated the April 2018 memorandum in June 2018 to remove the language
            related to unilateral closeout of the grants. As a result, our audit memorandum
            was adjusted to reflect this change. However, because the April 2018
            memorandum was signed prior to it going through the departmental clearance
            process, did not contain any language indicating that it was a draft, and was
            again provided to OIG in July 2018 at the start of this review, we did not
            consider it to be a draft. Further, the June 2018 memorandum stated that
            179,703 grants had been closed or removed before it was issued, and it did not
            indicate whether HUD would revisit those grants to ensure that program-specific
            grant closeout requirements were followed before OCFO closed the grants. As
            part of the full audit, we plan to perform a detailed review to determine whether
            grant closeouts were done properly.
Comment 2   HUD stated that the final versions of the memorandums issued by OCFO
            provided program offices more time to provide comments to keep grants open.
            We acknowledge that the updated June 2018 memorandum provided additional
            time for program offices to respond on the open grants. However, because the
            majority of the open grants were already closed or removed before the June 2018
            memorandum was issued, we do not have assurance that program offices were
            provided sufficient time to complete closeout procedures.
Comment 3   HUD stated that program offices had already completed the programmatic steps
            to close out a large number of the grants, and that the final step was confirming
            this and sending it to OCFO to record in the financial system. As part of the full
            audit, we plan to perform a detailed review of a sample of grant closeouts to
            make a determination whether they were done properly.
Comment 4   HUD acknowledged that the record for one grant was incorrect, which caused
            the recapture of funding while the activity was still ongoing. However, it stated
            that this occurred as a result of the program office marking it incorrectly as part
            of its annual open obligation review process. Therefore, HUD stated that the
            funds were not improperly deobligated in an effort to meet the GONE Act
            requirements. As part of the full audit, we plan to further research the
            circumstances related to this grant and the 15 other grants that had zero balances
            in the November 2017 data and positive balances in the June 2018 data.
Comment 5   HUD stated that the duplicate records identified during our review were not
            actually duplicate records. HUD explained that its awards frequently include
            funds from different years and that the information required by the Office of
            Management and Budget template for the data was not adequate to identify



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            unique financial transactions. However, we maintain that there was a risk in this
            area based on inconsistencies within the data from November 2017 and June
            2018. The data provided by HUD did not contain an identifier that clearly
            showed the duplicate records were unique records representing different program
            years. Further, if each entry did not represent a single grant, it raises a concern
            regarding the accuracy of HUD’s GONE Act reporting because it reported each
            record as a grant. As part of the full audit, we plan to perform a detailed review
            of these records to determine whether the data were accurate and whether HUD’s
            reporting methodology complied with the GONE Act requirements.
Comment 6   HUD stated that it was not necessary for all field office representatives to be
            aware of grant closeout procedures or the GONE Act because grant closeout is
            conducted at the headquarters level for some programs. However, many HUD
            programs require field offices to have substantial involvement and significant
            responsibilities in grant closeout processes because the field offices closely
            monitor the grant activities and administer drawdowns. We maintain that there
            is an increased risk that grants could be improperly closed when field offices are
            not informed of the GONE Act requirements and procedures. All field offices
            contacted had open grants in the closeout list. Further, the field office that was
            aware of the GONE Act requirements was not properly informed by HUD
            headquarters when a grant was incorrectly deobligated. Field office staff did not
            realize that the funds were deobligated until the grantee brought it to their
            attention when it was unable to make drawdowns. As part of the full audit, we
            plan to perform additional research related to the involvement of headquarters
            program offices and field offices in the grant closeout processes.




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