oversight

HUD Did Not Provide Adequate Oversight of Its Family Self-Sufficiency Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-10.

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

   Office of Public and Indian Housing,
             Washington, DC
                  Family Self-Sufficiency Program




Office of Audit, Region 3          Audit Report Number: 2018-PH-0002
Philadelphia, PA                                   September 10, 2018
To:            Robert E. Mulderig, Acting Deputy Assistant Secretary, Office of Public Housing
               Investments, PI
               //signed//
From:          David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
               Region, 3AGA
Subject:       HUD Did Not Provide Adequate Oversight of Its Family Self-Sufficiency
               Program


Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of HUD’s oversight of its Family Self-Sufficiency
program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG website. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
215-430-6734.
                    Audit Report Number: 2018-PH-0002
                    Date: September 10, 2018

                    HUD Did Not Provide Adequate Oversight of Its Family Self-Sufficiency
                    Program




Highlights

What We Audited and Why
We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of its
Family Self-Sufficiency (FSS) program. We conducted the audit as part of our annual audit
plan. Our objective was to determine whether HUD provided adequate oversight of its program.

What We Found
HUD did not provide adequate oversight of its FSS program. Specifically, HUD did not ensure
that grantees (1) always had action plans that complied with regulations, (2) accurately
calculated monthly escrow credits, (3) always reported accurately in its Public Housing
Information Center (PIC) database, (4) were adequately monitored by field offices for
compliance with regulations, and (5) maintained supporting documentation showing that
participants completed contractual agreement requirements. These conditions occurred because
HUD (1) did not adequately review grantee action plans to ensure compliance with requirements;
(2) did not have adequate policies and procedures for monitoring grantee activities, which
included ensuring that grantees properly calculated escrow amounts and maintained supporting
documentation; and (3) lacked adequate controls to ensure that data reported in PIC were
consistently updated and accurate. As a result, HUD lacked assurance that the program operated
effectively and that participants moved toward self-sufficiency once they graduated from the
program, a public housing agency made an ineligible escrow payment of $1,520, and program
funds totaling $7.8 million were unsupported because the action plans for 12 public housing
agencies were incomplete.

What We Recommend
We recommend that HUD (1) direct the 12 grantees to correct their action plans to comply with
program requirements and submit the corrected plans to HUD for review or repay HUD from
non-Federal funds for any of the $7.8 million it received that it cannot support; (2) require the
Housing Authority of Brevard County to repay $1,520 in ineligible escrow funds to HUD from
non-Federal funds for the program participant that exceeded allowable contract terms; (3)
monitor grantees’ efforts for improved accuracy and completeness of PIC program data; (4)
develop and implement a plan to monitor grantee FSS programs, including to ensure that escrow
accounts are calculated correctly; and (5) develop and implement policies and procedures to
ensure that grantees maintain documentation to support program participants’ contractual
agreements.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding: HUD Did Not Provide Adequate Oversight of Its Family Self-Sufficiency
         Program ............................................................................................................................. 5

Scope and Methodology .........................................................................................11

Internal Controls ....................................................................................................13

Appendixes ..............................................................................................................14
         A. Schedule of Questioned Costs .................................................................................. 14

         B. Auditee Comments and OIG’s Evaluation ............................................................. 15

         C. Review of Public Housing Agency Action Plans for Deficiencies ......................... 18




                                                                     2
Background and Objective
The Family Self-Sufficiency (FSS) program was established in 1990 by Section 554 of the
National Affordable Housing Act. The purpose of the program is to promote the development of
local strategies to enable families eligible to receive Federal assistance to achieve economic
independence and self-sufficiency. The objective of the FSS program is to reduce the
dependency of low-income families on Federal, State, and local housing assistance programs.
The U.S. Department of Housing and Urban Development (HUD) measures the success of the
program not only by the number of families who achieve self-sufficiency, but also by the number
of FSS families who as a result of participation in the program, obtain their first job or a higher
paying job, no longer receive benefits from one or more assistance programs, obtain a high
school diploma or college degree, or accomplish similar goals that assist the family in obtaining
economic independence.

Congress appropriates funding for the FSS program through annual appropriation acts that can
be used only to pay the salaries of FSS program coordinators. Originally, HUD funded separate
FSS programs under separate notices of funding availability for the Housing Choice Voucher
Program and the public housing program. In 2014, HUD combined the two programs into one
and issued one notice. The table below shows the awards for 2014, 2015, and 2016.


                 Fiscal year       Number of grantees 1                Amount awarded

                     2014                     728                          $75,034,496
                     2015                     705                           75,298,961
                     2016                     687                           75,158,372
                                            Total                          225,491,829

The FSS program is a volunteer program for public housing and Housing Choice Voucher
residents. Eligible families execute contracts of participation that spell out the terms and
conditions governing participation and the responsibilities of both the grantee and the family.
The contract incorporates individual training and service plans that contain short-term and long-
term goals and the steps that the families take to achieve those goals. HUD regulations at 24
CFR (Code of Federal Regulations) Part 984 have only two key program requirements that
participants must meet to graduate from the program. They are to (1) seek and maintain suitable
employment, 2 and (2) become independent from cash assistance 3 for at least 1 year before

1
    HUD awards FSS grants to public housing agencies, tribes, or tribally designated housing entities.
2
    Suitable employment determination is made by the grantee based on the skills, education, and job training of the
    individual who has been designated as the head of the FSS family and based on the available job opportunities
    within the jurisdiction served by the grantee.
3
    Temporary Assistance for Needy Families cash assistance provides monthly cash assistance to very low-income
    families based on eligibility standards set by the States.


                                                          3
graduation from the program. When a family’s income increases, the grantee performs a
recertification and calculates the new amount that the family is required to pay toward its
housing costs. The grantee will put into an escrow account the amount of subsidy it saved (either
Housing Choice Voucher Program funds or public housing program funds) because the family
increased its share of its housing costs during the term of the FSS contract. A family is eligible
to receive the escrow funds deposited into the account on its behalf when it meets the established
goals and completes its FSS contract.

Our objective was to determine whether HUD provided adequate oversight of its FSS program.




                                                4
Results of Audit

Finding: HUD Did Not Provide Adequate Oversight of Its Family
Self-Sufficiency Program
HUD’s oversight of its FSS program was not adequate. Specifically, HUD did not ensure that
grantees (1) always had action plans that complied with regulations, (2) accurately calculated
monthly escrow credits, (3) always reported accurately in its PIC database, (4) were adequately
monitored by field offices for compliance with regulations, and (5) maintained supporting
documentation showing that participants completed contractual agreement requirements. These
conditions occurred because HUD (1) did not adequately review grantee action plans to ensure
compliance with requirements; (2) did not have adequate policies and procedures for monitoring
grantee activities, which included ensuring that grantees properly calculated escrow amounts and
maintained supporting documentation; and (3) lacked adequate controls to ensure that data
reported in PIC were consistently updated and accurate. As a result, HUD lacked assurance that
the program operated effectively and that participants moved toward self-sufficiency once they
graduated from the program; a public housing agency made an ineligible escrow payment of
$1,520; and program funds totaling $7.8 million were unsupported because the action plans for
12 public housing agencies were incomplete.

Action Plans Did Not Always Comply With Regulations
HUD did not ensure that program action plans complied with applicable regulations.
Regulations at 24 CFR 984.201 required that each participating grantee’s action plan include a
minimum of 12 elements. The 12 elements included (1) family demographics, (2) estimated
number of families that could participate in the program, (3) eligible families from self-
sufficiency programs, (4) family selection procedures, (5) outreach efforts, (6) incentives to
encourage participation, (7) FSS activities and supportive services, (8) a method for identifying
family support needs, (9) assurances of noninterference with the rights of nonparticipating
families, (10) program termination procedures, (11) a timetable for program implementation, and
(12) a certification of coordination. However, 12 of the 27 grantee 4 action plans reviewed did
not include at least 1 of the required elements. For example, nine grantee action plans did not
include a certification of coordination, which certified that the development of the services and
activities under the FSS program had been coordinated with the job opportunities and basic skills
programs, and other relevant employment, transportation, and education programs in the
applicable area to avoid duplicated services and activities. HUD stated that the action plans were
required to be reviewed only when the grantee submitted its original application for enrollment
in the FSS program. Further, in 2012, HUD issued guidance to the field offices for reviewing
grantee action plans, but the guidance did not require the field offices to conduct the reviews.
HUD acknowledged that action plans were not compliant and planned to include action plan
reviews in its new FSS monitoring tool. However, the monitoring tool had not been

4
    The 27 grantees are the public housing agencies related to the 31 participant files reviewed. Three grantees had
    more than one participant.


                                                           5
implemented, resulting in 12 of the 27 grantees reviewed being awarded $7.8 million in
unsupported costs (appendix C).

Grantees Did Not Always Correctly Calculate Monthly Escrow Credits
HUD did not ensure that the grantees always calculated escrow accounts correctly for FSS
participants. Specifically, 4 of 31 participants reviewed had incorrect escrow balances for 12
months before completing the program. Three of the four participants had escrow credits
totaling $791 that the grantees owed to the participants. The incorrect calculations were a result
of the participants’ increased income that was not identified by the grantee and included in its
escrow calculations. Regulations at 24 CFR 984.305(b)1 required that the FSS credit be
computed by the amount that is the lessor of (1) 30 percent of current monthly adjusted income
less the family rent, disregarding any increases in earned income from the effective date of the
contract of participation; or (2) the current family rent less the family rent at the time of the
effective date of the contract. The fourth participant was overpaid $1,520 because the participant
had exceeded the contract terms for the FSS program. Regulations at 24 CFR 984.303(c) and (d)
stated that the FSS participants must complete the obligations agreed upon no later than 5 years
from the effective date of the contract, with the option of a 2-year extension. However, the
participant was enrolled in the program for 8 years, and the grantee continued to allow the
escrow account to accumulate funds, which resulted in ineligible costs of $1,520.

HUD’s Automated Data Were Not Always Accurate
HUD did not ensure that grantees always reported accurate participant data in its automated PIC
database. We reviewed the information for six participants that grantees had reported in PIC as
having graduated from the program that did not receive their escrow disbursement. Our review
found that the PIC information was inaccurate and the six participants received their escrow
disbursements. HUD Office of Public and Indian Housing (PIH) Notice PIH-2010-25 required
grantees to submit their form HUD-50058 5 reports no later than 60 calendar days from the
effective date of any action recorded. HUD relies on the grantees to submit accurate, complete,
and timely data to administer, monitor, and report on the management of its assistance programs.
The data we obtained on the six participants were dated February 1, 2017, and showed that the
participants had graduated from the FSS program from December 2014 to March 2016.
Therefore, the grantee reports should have been current and accurate. HUD uses the PIC data to
report program performance outcomes to Congress. The reports include such items as the
number of program participants, number of graduates, amount of escrow funds received, number
of participants that exited rental assistance, and number of graduates that purchased a home.
Without complete, accurate, and timely information being submitted by grantees to PIC, HUD
lacks assurance that the program outcomes reported to Congress accurately reflect the program’s
performance.




5
    Form HUD-50058, Family Report, is the PIH report that HUD uses to collect information from its public
    housing, Housing Choice Voucher, and Section 8 Moderate Rehabilitation programs. The information is
    collected in the PIC database that HUD uses to monitor grantees, provide demographic information describing
    tenants’ characteristics, participate in income matching, detect fraud, and analyze the subsidized housing
    programs.


                                                         6
HUD Did Not Ensure That Field Offices Monitored the FSS Program
HUD did not have formal program monitoring requirements for the field offices responsible for
overseeing the activities of the FSS grantees. There were no monitoring tools or guidebooks to
assist field offices with conducting site visits or monitoring reviews. Of the 27 grantees in our
sample, only 8 (30 percent) had been monitored or received technical assistance related to the
FSS program in the last 3 years. However, the technical assistance that was provided was related
to the timeliness of grant drawdowns and not the implementation of the program. HUD
Handbook 7460.7, REV-2, states that HUD monitors grantee compliance with HUD statutes and
regulations through audits. The primary mission of HUD’s field office staff is to ensure that
grantees meet these performance requirements and facilitate the provision of technical assistance.
Without adequate monitoring, grantees were operating their FSS programs with little to no
oversight from HUD. In May 2018, during our review, HUD stated that it was finalizing and
implementing a new FSS monitoring tool. However, the monitoring tool had not been
implemented.

Grantees Did Not Always Maintain Supporting Documentation
HUD did not ensure that grantees always maintained sufficient documentation in the
participants’ files to support completion of program goals and objectives. For example, of the 31
files reviewed, for 6 files managed by 6 grantees, documentation in the files used to support the
participants’ completion of goals included handwritten notes, while other grantees maintained
copies of credit reports showing a decrease in debt, bank statements showing an increase in
savings, or transcripts showing that college courses had been completed. In addition, for six files
managed by five grantees, the files contained no documentation to support the achievement of
program goals. The FSS Guidebook, issued in February 2017, states that FSS programs should
keep detailed records of participant activities to support the participants’ goals and contract of
participation. HUD stated that it did not provide guidance on the supporting documentation that
should be maintained in the files to show that participants completed the goals and objectives of
their contractual agreements. In addition, HUD did not require the grantees to perform third-
party verification of the participants’ completion of program goals and objectives. Although,
grantees had documentation to show that participants achieved the two key program
requirements, HUD lacked assurance that the participants completed the additional program
goals and objectives that were developed specifically for each participant’s contractual
agreement because the grantees did not always obtain or maintain supporting documentation
verifying those accomplishments.

HUD Lacked Oversight and Adequate Controls
These conditions occurred because HUD did not provide adequate oversight of its FSS program.
Specifically, HUD (1) did not adequately review grantee action plans to ensure compliance with
regulations; (2) did not have adequate policies and procedures for monitoring grantees’ activities,
which included ensuring that escrow accounts were properly calculated and supporting
documentation was maintained by grantees; and (3) lacked adequate controls to ensure that data
reported in PIC were consistently updated and accurate. Notice PIH-2010-25 states that HUD
relies on grantees to submit accurate, complete, and timely data to administer, monitor and report
on the management of its assistance programs. HUD receives FSS program funding from
Congress based on program outcomes reported in the congressional justification, which is



                                                 7
developed from the PIC data. Inaccurate PIC data can result in potentially overinflated outcomes
and accomplishments, which Congress uses to make decisions.

HUD Recently Developed and Planned To Implement FSS Program Policy Changes
In July 2013, the U.S. Government Accountability Office (GAO) issued a report (GAO-13-581)
stating that HUD’s data on self-sufficiency programs should be improved. GAO found that
HUD needed to better inform Congress and improve what was known about residents’
participation in key grant programs designed to facilitate resident self-sufficiency and their
progress toward self-sufficiency. In October 2013, HUD’s Office of Inspector General (OIG)
issued a memorandum (2014-NY-0801) on the Housing Choice Voucher FSS program, which
found that HUD did not sufficiently monitor the grantees administrating the FSS program. Both
reports included recommendations that would improve the completeness and accuracy of the FSS
program. HUD developed and issued the following guidance to address the recommendations
from both of these reports.

In February 2017, HUD issued the Family Self-Sufficiency Guidebook. The Guidebook was
created to provide best practice tips to grantees and HUD staff on how to improve the
administration of the FSS program. The guidance provided ideas for FSS recruitment,
modifying individual service plans, performing escrow calculations, case management, and
tracking outcomes. The Guidebook addressed some of the deficiencies noted in our report, such
as inaccurate escrow calculations, modifying individual service plans to reflect current goals, and
case management. However the guidance did not require that supporting documentation, such as
third-party verification, be maintained to support that the participants’ interim and final goals
were met. HUD needs to improve its oversight to ensure that grantees follow the best practices
and support the outcomes reported. Further, HUD encouraged field offices and grantees to
review the best practices online training that was developed; however, it was not a training
requirement.

In February 2017, HUD issued guidance to grantees explaining that it would no longer accept ad
hoc reports on the number of FSS program participants. HUD stated that it would rely solely on
the number of FSS families shown in PIC for each of the grantees and encouraged public
housing agencies to ensure that the number of FSS families was accurately reported in PIC. This
guidance addressed the deficiencies noted in the report related to the inaccurate reporting in PIC.
Beginning in fiscal year 2017, the grantees were awarded FSS program funds based solely on the
PIC data they entered. This measure helped to increase the program data reported in PIC,
ensuring that participant details and outcomes were more accurately reflected.

In December 2017, HUD issued Federal Register 6046-N-01- Family Self-Sufficiency
Performance Management System. The regulation stated that HUD planned to use the
performance measuring system to identify high-performing and troubled FSS programs. In
addition, HUD would likely consider the FSS performance score of an FSS program when it
determined FSS funding awards. At least once per year, HUD would analyze data collected
from PIC to calculate the FSS performance scores for each grantee program. A grantee’s FSS
performance score would be calculated based on three measures and weighted as follows:




                                                 8
       (1) earnings performance measure (50 percent),
       (2) graduation rate (30 percent), and
       (3) participation rate (20 percent).

This new regulation addressed the deficiencies noted in our audit related to ensuring that
program outcome results are accurate. By linking grantees’ funding with the graduation rate and
overall performance of the program, it could improve the grantees’ efforts to increase program
participation and the overall goal of achieving self-sufficiency. However, the performance
measurement tool that is used to compare the performance of each grantee will be used at least
annually; therefore, only a select number of grantees will be monitored, and it may take a few
years to see the results of how the grantees performed over the years.

In January 2018, HUD provided the draft version of the Family Self-Sufficiency Monitoring
Tool. The monitoring tool would be used when field office staff conducted onsite and remote
reviews of FSS grantees and addressed topics such as action plan compliance, the number of
participants enrolled in the FSS program, the number of participants identified in PIC versus the
number of participants identified by the grantee system, grantees’ composite score, escrow funds
forfeited, coordinator training, Line of Credit Control System draws, and prior HUD OIG audit
findings. When the monitoring tool is finalized, it should address the deficiencies noted in our
report, as the tool addresses action plan compliance and verifying PIC participant data.
However, HUD did not determine the frequency of monitoring for grantees; therefore, HUD
cannot provide assurance on how many of the almost 700 grantees could be monitored within the
next 3 years.

Conclusion
HUD did not provide adequate oversight of its FSS program. This condition occurred because
HUD did not have adequate controls or policies and procedures to ensure compliance with the
regulations. HUD needs to continue to strengthen its oversight of the program to ensure that
grantees (1) continue to improve the accuracy of their reporting in the PIC database, (2) are
adequately monitored by field offices for compliance with regulations, (3) accurately calculate
monthly escrow credits, (4) maintain supporting documentation showing that participants
completed contractual agreement requirements, and (5) have action plans that comply with
regulations. HUD’s lack of assurance that the FSS program operated effectively resulted in an
ineligible payment of $1,520 to a participant and unsupported costs of $7.8 million.

Recommendations
We recommend that the Acting Deputy Assistant Secretary for Public Housing Investments

       1A.     Require the 12 grantees to correct their action plans to ensure that they comply
               with program requirements and submit the corrected plans to HUD for review or
               require the grantees to repay HUD from non-Federal funds for any amount of the
               $7,779,450 they received that they cannot support.




                                                9
1B.   Require the Housing Authority of Brevard County to repay $1,520 in ineligible
      escrow funds to HUD from non-Federal funds for the program participant that
      exceeded allowable contract terms of the FSS program.

1C.   Monitor the grantees’ efforts to improve the accuracy and completeness of the
      PIC program data to ensure that program outcomes reported to Congress are
      accurately supported.

1D.   Develop and implement a plan to monitor grantee FSS programs, including to
      ensure that escrow accounts are calculated correctly.

1E.   Develop and implement policies and procedures to ensure that documentation is
      maintained by grantees to support program participants’ contractual agreements.




                                       10
Scope and Methodology
We conducted the audit from December 2016 through August 2018 at HUD headquarters in
Washington, DC, and our offices located in Baltimore, MD, Pittsburgh, PA, and Richmond, VA.
The audit covered the period October 1, 2013, through September 30, 2016, but was expanded
from July 1, 2013, through August 1, 2017, to include (1) the universe of residents who were
identified in a previous audit on overincome persons living in public housing that showed a
blank field in PIC for FSS participation, and (2) additional participant file information to
determine why several participants that graduated from the program had an increase in rental
subsidies after participation.

To accomplish our objective, we reviewed

     •   Applicable laws, regulations, HUD’s program requirements at 24 CFR Parts 984 and 982,
         and other program guidance.
     •   Federal funding notices, grant application data, and program action plans.
     •   Participant program files, to include forms HUD-50058, contracts of participation,
         individual training and service plans, the subsidiary ledger for escrow credits and
         disbursements, and canceled checks for escrow disbursements.

We also interviewed staff from HUD’s public housing program and Housing Choice Voucher
Program, HUD’s Office of Public Housing Investments, and various public housing agencies.

To achieve our audit objective, we relied in part on computer-processed data in HUD’s PIC
system. Although we did not perform a detailed assessment of the reliability of the data, we
performed a minimal level of testing and found the data to be adequate for our purpose. The
testing included comparing information obtained from HUD’s PIC system to the participants’
program files obtained by the grantees. We used the data to determine the number of program
participants that enrolled, completed, and remained in the FSS program. In addition, we used the
data to determine the number of program participants that had exited HUD’s rental assistance
program and participants that currently received rental assistance.

To validate the data obtained from HUD’s database, we selected three sample sets. The first
selection was a statistical sample of 85 families from a universe of 3,338 families that graduated
from the program from January 1, 2014, to December 31, 2016, 6 and received escrow
disbursements totaling more than $1 million. These 85 families continued to receive rental
subsidies. Of the 85 files, we reviewed 25 files during our survey to determine whether the
families met program requirements and were eligible to receive escrow disbursements. Although
this sample of 25 families did not allow us to project the results to the population, it was
sufficient to meet the audit objective. We did not review the other 60 files that were selected

6
    Our samples included participants from both the Housing Choice Voucher Program and public housing program,
    which were combined into one program in 2014.


                                                       11
during the audit since we found that all 25 families met the program requirements and had
received their escrow disbursements.

Our second selection included a nonstatistical sample of six families that graduated from
January 1, 2014, to December 31, 2016, but did not receive their escrow disbursements. We
selected six participants that completed the program and had the highest escrow balance to
determine why they did not receive their escrow disbursement and to determine whether the
families met program requirements. Although this sample did not allow us to project the results
to the population, it was sufficient to meet the audit objective. We determined that all six
families received their escrow funds and met the program requirements. Overall, we reviewed
31 participant files from the 2 samples described above. The 31 participant files were obtained
from 27 grantees. Three of the grantees had more than one participant. In addition to the 31
participant files reviewed, we obtained and reviewed the 27 grantees’ action plans to determine
whether the plans complied with the regulations.

The third selection came from PIC data that were obtained during the audit on overincome
persons living in public housing (2015-PH-0002). During that audit, we found that for 11,324
residents, the field in PIC for FSS participation was blank. We selected a targeted sample of 30
residents 7 to determine whether they had participated in the FSS program from July 1, 2013, to
July 31, 2014, which was the last year of the audit period addressed in audit report 2015-PH-
0002. Although this sample did not allow us to project the results to the population, it was
sufficient to meet the audit objective. We determined that the 2 of the 30 residents were enrolled
in the FSS program from July 1, 2013, to July 31, 2014; however, they did not receive escrow
payments during the time that they exceeded the annual income limits.

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




7
    10 from Moving to Work public housing agencies and 20 from non-Moving to Work public housing agencies


                                                      12
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

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

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

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

•   HUD did not provide adequate oversight to ensure that the FSS program operated effectively
    and participants moved toward and maintained self-sufficiency upon graduation from the
    program.




                                                  13
Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1A                              $7,779,450
                          1B              $1,520


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.
2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                              14
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation


                                      U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                                           WASHINGTON, DC 20410-5000




                 OFFICE OF PUBLIC AND INDIAN HOUSING




                 DATE:           August 28, 2018

                 MEMORANDUM FOR: David E. Kasperowicz, Regional Inspector General for Audit, Philadelphia
                                            Region, 3AGA


                 FROM:          Robert E. Mulderig, Acting Deputy Assistant Secretary for Public Housing
                                  Investments, PI

                 SUBJECT:        Response to Draft Audit Report – Family Self-Sufficiency Program,
                                   Audit Report Number: 2018-PIH-XXXX


                         Staff in the Office of Public Housing Investments (OPHI)/Office of Public and Indian
                 Housing (PIH) appreciate the discussions that were provided by the Office of the Inspector General
                 (OIG) during the conduct of the audit of the Family Self Sufficiency (FSS) Program, as well as the
                 open dialogue of the exit conference held on August 20, 2018. Thank you for the collaborative spirit
                 in which all aspects of the audit were conducted.

                          As we acknowledged at the exit conference, OPHI staff agree in principle with much of the
Comment 1        analysis in your draft audit report; moreover, even prior to the conclusion of the audit study, we had
                 already moved to implement actions relevant to some of the key recommendations included in the
                 draft report. We anticipate developing a Management Decision in response to the audit report that
                 concurs with the five recommendations you have offered in the audit report.

                          However, OPHI/PIH does take some exception to the characterization of $7,779,450 in
Comment 2        “unsupported costs” in Recommendation 1A. We recognize that your basis for this characterization
                 is the total grant amount for 12 FSS participating agencies for which your study found cases of
                 noncompliance, in particular related to agency Action Plans needing to be brought into compliance
                 with Program requirements. We believe that some of these cases of noncompliance are quite easily
                 remedied. For example, the OIG audit report cites nine FSS PHAs that did not have a Certification
                 of Coordination in the Action Plan. However, for the FSS Program to function, OPHI knows that
                 services must be—and are being—coordinated with local providers.




                                              15
                    Of course, we concur with the need to ensure that all FSS Action Plans and other aspects of
Comment 2   FSS Programs are fully compliant with Program requirements; but OPHI has high confidence that
            our efforts with FSS PHAs will result in areas of noncompliance being remedied rather readily. We
            believe that these efforts will result in negligible, if any, costs that are ultimately unsupported.
            Therefore, OPHI/PIH contends that the audit report’s suggestion that unsupported costs total nearly
            $7.8 million significantly overstates the true magnitude of likely concern.

                   Our staff look forward to working with you as we conclude this audit, prepare our
            Management Decision, and move forward toward final actions in response to the audit report
            recommendations. We thank you for your commitment to continual improvement of all OPHI
            programs, including Family Self Sufficiency (FSS).

                    Thank you for this opportunity to comment on the subject draft audit report. If you have any
            questions, please do not hesitate to contact Maria-Lana Queen at (202) 402-4890.




                                        16
                         OIG Evaluation of Auditee Comments


Comment 1   HUD stated that it agreed in principle with much of the analysis in the report and
            that it anticipated developing management decisions to concur with the report’s
            five recommendations. We are pleased with HUD’s response. Based on the
            response, as part of the audit resolution process, we expect to reach timely
            management decision with the Department on corrective actions to address the
            five recommendations.
Comment 2   HUD stated that it took some exception to the characterization of the $7,779,450
            in unsupported costs identified in recommendation 1A. HUD recognized that our
            basis for this characterization was the total grant amount for 12 FSS participating
            agencies for which our review found cases of noncompliance with agency action
            plans. HUD believes that some of the cases of noncompliance can be easily
            remedied. Therefore, HUD contends that reporting nearly $7.8 million in
            unsupported costs overstates the magnitude of the concern. Notwithstanding that
            exception, HUD agreed with the need to ensure that all FSS action plans and other
            aspects of the program fully comply with requirements. It has great confidence
            that the areas of noncompliance will be remedied rather quickly.
            We agree that the areas of noncompliance can be corrected quickly as a result of
            HUD working with the public housing agencies. However, HUD required public
            housing agencies to submit their action plans as a prerequisite for grant eligibility.
            As stated in the audit report, 12 of the 27 grantee action plans reviewed did not
            include at least one of the required elements. Unsupported costs are reported
            when we cannot determine eligibility at the time of the audit. Unsupported costs
            generally require obtaining supporting documentation. The unsupported costs in
            recommendation 1A can be resolved and no repayment will be necessary if the
            public housing agencies make the necessary corrections to bring their action plans
            into compliance with requirements.




                                               17
Appendix C
                                  Review of Public Housing Agency Action Plans for Deficiencies




                                                                                                 participating families




                                                                                                                                                        Program termination
                                                                                                                                     Family selection




                                                                                                                                                                              noninterference
                                                                                                                                                                                                Certification of
                 Public housing




                                           Public housing




                                                                                  Demographics




                                                                                                                                                                               Assurances of
 Sequence no.




                                            agency name




                                                                                                                                                                                                 coordination
                  agency code




                                                                                                      Estimate of




                                                                                                                                       procedures
                                                                                                                          Outreach
                                                                         Award
                                  Michigan State
 1              MI901             Housing Development                $2,889,943   X                 X                                                                           X                 X
                                  Authority
                                  Housing Opportunities
 2              MD004             Commission of                      1,583,587    X                                                                                             X                 X
                                  Montgomery County
                                  Housing Authority of
 3              CO001             the City and County of              848,171                                                                                                                     X
                                  Denver
                                  Jackson Housing
 4              TN007                                                 608,138                                                          X
                                  Authority
                                  Ithaca Housing
 5              NY054                                                 410,934                       X                     X
                                  Authority
                                  Housing Authority of
 6              NC007                                                 370,966                                                                                                                     X
                                  the City of Asheville
                                  Housing Authority of
 7              FL020                                                 229,483     X                                                                                                               X
                                  Brevard County
 8              VA035             County of Loudoun                   201,416     X                                                                                                               X
                                  Housing Authority of
 9              SC002                                                 189,494                                                                                                                     X
                                  the City of Columbia
10              NY408             Town of Colonie                     157,367                                                          X                X
                                  Cecil County Housing
                MD029                                                 155,668     X                                                                     X                       X                 X
11                                Agency
                                  Coventry Housing
12              RI016                                                 154,283                                                                                                                     X
                                  Authority
                                                            Totals   7,799,450    5                   2                   1             2               2                        3                 9




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