oversight

HUD's Departmental Enforcement Center's Compliance Division, Evaluation of Suspension and Debarment Referrals

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-11-04.

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 for Investigation 
                            
        Inspections and Evaluations Division 




    HUD’s Departmental Enforcement Center’s 
              Compliance Division

 Evaluation of Suspension and Debarment Referrals 

                   November 4, 2010 
                     IED‐11‐001R
                                         Executive Summary
The Office of Inspector General (OIG), Inspections and Evaluations Division, conducts
independent, objective examinations of U.S. Department of Housing and Urban Development
(HUD) activities, programs, operations, and organizational issues.

We conducted an evaluation of HUD’s Departmental Enforcement Center (DEC), specifically,
the Compliance Division. We wanted to know whether DEC processed suspension and
debarment referrals in a timely manner. We also wanted to identify ways to improve case
management for suspensions and debarments.

The Compliance Division is responsible for administering HUD’s administrative sanctions
program as established at 2 CFR (Code of Federal Regulations) Parts 180 and 2424. The
division imposes suspensions and debarments against individuals or entities for criminal and/or
serious departmental program violations.

       Suspensions are imposed for a temporary period, pending the completion of an
        investigation or legal proceedings. Suspension may be enacted based on adequate
        evidence, such as indictment or conviction. Depending upon the outcome of the
        investigation or legal proceedings, suspension could lead to debarment.

       Debarments are serious actions imposed by HUD. The general duration of a debarment
        is 3 years, but it could be longer, even for an indefinite period, depending upon the
        seriousness of the violation.

A suspension or debarment results in the immediate exclusion from participation in HUD and all
other Federal Government procurement and nonprocurement programs for a specified period.1

Between October 1, 2006, and December 9, 2009, DEC’s Compliance Division received a total
of 978 suspension and/or debarment referrals (cases) from HUD OIG, various HUD program
offices, and the U.S. Department of Justice. We observed the following based on our review of
62 cases:

       Suspension and debarment referrals were not processed in a timely manner. In 36 cases,
        the Compliance Division took between 12 and 681 days after receipt of a referral and/or
        charging document to process suspension and debarment notices. Immediate actions to
        suspend and/or debar individuals or entities were not taken in 11 of 47 cases, although the
        standards of evidence under Federal regulations had been met. Notices of final
        determination for debarments were sent to 13 individuals between 12 and 316 days
        beyond the 45-day requirement. Lastly, the division took from 96 to 740 days to close 16
        of 18 cases in which it was determined that a suspension or debarment was not warranted.




1
 U.S. Department of Housing and Urban Development’s Homes and Communities, “Compliance Division,”
http://www.hud.gov/offices/enforce/sidebar/decrelationships.cfm (content current as of November 4, 2010)

                                                       ii
      Federal requirements for entry of excluded parties were not met. Regulations at 2 CFR
       180.520(c) require DEC to enter information on excluded (suspended or debarred)
       individuals or entities into the Excluded Parties List System (EPLS), a governmentwide
       electronic database, generally within 5 working days after taking action. Information on
       14 (40 percent) of 35 individuals, against whom DEC took a suspension and/or
       debarment action, was not entered in EPLS within the time permitted. The number of
       days elapsed for entry of information on the excluded individuals ranged from 6 to 114
       days for suspensions and 1 to 394 days for debarments.

      Record keeping system needs improvement. Of the 83 referrals selected for review, the
       Compliance Division was unable to locate 21 of the related case files and had to
       reconstruct two case files that were provided. Also, DEC’s policies and procedures for
       the retention and disposition of related suspension and debarment records had not been
       formalized.

Delays in the processing of suspension and debarment actions and late entry of information on
excluded individuals or entities into EPLS ultimately places HUD and other Federal agencies at
an increased risk of awarding contracts, grants, and other subsidies to unethical, dishonest, and
irresponsible parties. To improve the effectiveness of HUD’s administrative sanctions program,
steps must be taken by DEC to ensure that suspension and debarment actions are processed
consistently and in a timely manner. These steps include development of formalized written
policies and procedures for the Compliance Division and department wide guidance. Also, a
uniform record keeping system that provides for a complete historical record of the suspension
and debarment process should be established.

We provided a draft copy of the report to HUD’s General Counsel on October 12, 2010. The
DEC generally agreed with our observations and concurred with the recommendations. OIG
considers the DEC’s planned corrective actions to be responsive to the four recommendations.
However, the recommendations remain open pending verification of corrective actions taken.
The complete text of the DEC’s October 27, 2010, response is included in appendix A.




                                                iii
                                                         Table of Contents
Introduction ......................................................................................................................................5

Scope and Methodology ..................................................................................................................7

Observations

     Observation 1: Suspension and Debarment Referrals Were Not Processed in a Timely
     Manner .......................................................................................................................................8

     Observation 2: Federal Requirements for Entry of Excluded Parties Were Not Met .............12

     Observation 3: Record Keeping Needs Improvement ............................................................13

Recommendations ..........................................................................................................................14

Comments and OIG Response .......................................................................................................16

Appendix A – HUD Departmental Enforcement Center’s Comments ..........................................17

Appendix B – Suspension and/or Debarment Referrals – October 1, 2006,
   Through December 9, 2009 .....................................................................................................20

Appendix C –Suspension and Debarment Process ........................................................................21




                                                                        iv
                                                Introduction
   Departmental Enforcement Center

   The U.S. Department of Housing and Urban Development’s (HUD) Departmental Enforcement
   Center (DEC) was established in September 1998 to combine the enforcement actions of the
   Office of Public and Indian Housing (PIH), the Office of Community Planning and Development
   (CPD), the Office of Fair Housing and Equal Opportunity (FHEO), and the Office of Housing
   into one authority. DEC is part of the Office of General Counsel (OGC) and is comprised of the
   Office of the Director, the Compliance Division, the Operations Division, and five satellite
   offices.

   The Compliance Division is responsible for administering HUD’s administrative sanctions
   program as established at 2 CFR (Code of Federal Regulations) Parts 180 and 2424. The
   division imposes administrative sanctions—suspensions and debarments—against individuals or
   entities for criminal and/or serious departmental program violations. A suspension or debarment
   results in the exclusion of an individual or entity from participation in HUD and all other future
   Federal procurement and nonprocurement transactions for a specified period. The DEC Director,
   as the suspension and debarment official, has discretion to suspend and/or debar an individual or
   entity. The table below provides the differences between a suspension and a debarment.2

                                       Suspension                                    Debarment 
When to take action       Temporary status of ineligibility pending  A specific period as a final determination 
                          the outcome of the investigation or legal  that a person is not presently 
                          proceeding                                 responsible 
Causes                     a.  Must have adequate evidence (an        Preponderance of evidence (a conviction 
                               indictment) that there may be a        or civil judgment) that the person has 
                               cause for debarment of a person,       engaged in conduct that warrants 
                               and                                    debarment  
                                                                        
                           b.  Immediate action is necessary to 
                               protect the Federal Government’s 
                               interest 
Period                    Usually 1 year                              Usually 3 years, could be indefinite 
Effective                 Upon the issuance of a notice of            Upon the issuance of a notice of final 
                          suspension                                  determination 
Burden of proof           Suspended person                            Federal agency 
Opportunity to contest    Yes, 30 days from notice                    Yes, 30 days from notice 
Timeframe for             Within 45 days of closing of official       Within 45 days of closing of official 
suspension and            record                                      record 
debarment official to 
take action 


   2
    2 CFR Part 180, OMB [Office of Management and Budget] Guidelines to Agencies on Governmentwide
   Debarment and Suspension (Nonprocurement)

                                                        5
The Compliance Division processes two types of suspension and debarment referrals (cases):
criminal-based and fact-based. Criminal-based cases are generally referred to the division by the
HUD Office of Inspector General’s (OIG) Office of Investigation, and the related court
documents are submitted with the referral. The amount of work required for processing a
criminal-based case is normally minimal, involving some background research and information
verification. Fact-based cases are usually referred by HUD’s program offices and HUD OIG’s
Office of Audit. A referral for a fact-based case, for example, can originate from a newspaper
article, which would require the analyst to “build the case” (i.e., research and gather additional
information) to ensure that there is adequate evidence to pursue an administrative sanction. Fact-
based cases generally require more time to process than a criminal-based case.

DEC Case Statistics

Between October 1, 2006, and December 9, 2009, DEC’s Compliance Division received 978
suspension and/or debarment referrals. In fiscal year (FY) 2007, the division received 278 cases
that were divided among six full-time analysts. In FY 2008, the division experienced an increase
of 23 percent in cases, while the number of full-time analysts remained the same. In FY 2009,
the workload decreased by 15 percent, and the division lost a full-time analyst. Currently, the
Compliance Division has a total of four full-time analysts.3 The following table provides a
breakdown of cases by analyst.

                                               FY                               FY              10/01/2009 
                                                          %                              %          to 
           DEC analyst            2007       2008      Change      2008       2009    Change    12/09/2009
             Full time             43         83         93%        83         80       ‐4%         15
             Full time             50         74         48%        74         63      ‐15%         12
             Full time             48         56         17%        56         68       21%         11
             Full time             86         33        ‐62%        33         19      ‐42%          6
             Full time             36         42         17%        42         13      ‐69%           ‐
             Full time              2         25       1150%        25          ‐         ‐           ‐
            Part time               6           ‐         ‐          ‐          ‐         ‐           ‐
              Intern                6         28        367%        28         39       39%         23
              Intern                ‐           ‐         ‐          ‐          6         ‐           ‐
              Intern                ‐           ‐         ‐          ‐          2        ‐            ‐
              Intern                1           ‐         ‐          ‐          ‐        ‐            ‐
           Unassigned               ‐          ‐          ‐          ‐          ‐        ‐           2
           Total cases             278        341       23%         341        290     ‐15%         69
     Total full‐time analysts       6          6         0%          6          5      ‐17%          4

Of the 978 referrals, 841 (86 percent) were from HUD OIG’s Office of Investigation and Office
of Audit. The remaining 137 cases were referred by OGC, HUD Homeownership Centers, PIH,
DEC satellite offices, CPD, FHEO, HUD field and regional offices, other, and the U.S.
Department of Justice (DOJ). See appendix B for a breakdown of the referrals.
3
    As of September 30, 2010, an additional 969 cases had been referred to the DEC.

                                                          6
Five Phases for Processing Referrals

The process used by the Compliance Division to determine whether a referral for administrative
sanction warrants a suspension and/or debarment consists of the following phases:

       Phase 1 - suspension notice development
       Phase 2 - suspension concurrence
       Phase 3 - opening pending
       Phase 4 - debarment concurrence
       Phase 5 - governmentwide exclusion

The 5 phases contain a total of 11 steps, starting with receipt of the referral for administrative
sanction. If a suspension or debarment is deemed appropriate, the process ends with entry of
information on the excluded individual or entity into the Excluded Parties List System (EPLS).4
The division uses the Compliance Tracking System (CTS) to store information and to track the
status of referred cases. During each phase, information pertaining to a referral is entered into
the system by the assigned analyst. See appendix C for a detailed description of the suspension
and debarment process.

                                       Scope and Methodology
We interviewed officials and staff of DEC’s Compliance Division to gain an understanding of
their operations and the suspension and debarment process. We also reviewed applicable laws
and regulations related to Federal Government suspensions and debarments for nonprocurement
transactions. The evaluation fieldwork was performed at DEC’s Compliance Division located in
Washington, DC.

Between October 1, 2006, and December 9, 2009, the Compliance Division received a total of
978 suspension and/or debarment referrals (cases) from HUD OIG, various HUD program
offices, and DOJ. The 978 cases consisted of 321 completed cases, 291 closeouts, and 366 cases
in process.5 We sampled 83 cases for review to determine whether suspension and debarment
referrals were processed in a timely manner and to identify ways to improve case management.
The division was unable to provide 21 of 83 case files requested for review (see observation 3).
Therefore, the results of this evaluation are based on review of 62 cases (21 completed cases, 18
closeouts, and 23 cases in process) and the related CTS entries.

We conducted the evaluation in accordance with the Quality Standards for Inspections issued by
the President’s Council on Integrity and Efficiency.



4
  EPLS is a governmentwide electronic database, operated by the General Services Administration, which identifies
those parties excluded from receiving Federal contracts or certain subcontracts and from certain types of Federal
financial and nonfinancial assistance and benefits. EPLS is accessible by the public at https://www.epls.gov/.
5
  A completed case is when all suspension and/or debarment actions are complete and no more actions are
necessary. A closeout case occurs when it is determined that a suspension and/or debarment action is not warranted
and no actions are taken. A case in process is still in the suspension and the debarment process.

                                                        7
                                                 Observations

Observation 1 - Suspension and Debarment Referrals Were Not Processed in
a Timely Manner
Review of 62 cases disclosed that suspension and debarment referrals were not processed in a
timely manner by DEC’s Compliance Division. Specifically, suspension and debarment notices
were not issued promptly after receipt of a referral and/or charging document. Immediate
actions to suspend and/or debar individuals or entities were not taken in some cases, although the
standards of evidence under Federal regulations had been met. Notices of final determination
were not issued promptly. Lastly, cases in which it was determined that a suspension or
debarment was not warranted were not closed in a timely manner. A delay in suspension and
debarment decisions ultimately places HUD and other Federal agencies at an increased risk of
awarding contracts, grants, and other subsidies to unethical, dishonest, and irresponsible parties.

Suspension and Proposed Debarment Notices

Notices of suspension, notices of proposed debarment and suspension, and notices of proposed
debarment were not issued in a timely manner after receipt of referrals and/or charging
documents. Regulations at 2 CFR 180.715 state that after deciding to suspend an individual, the
suspension official promptly sends out a notice of suspension.6 In 36 cases reviewed, the
Compliance Division took between 12 and 681 days to process the notices.

Immediate Action Was Not Taken

Immediate actions to suspend and/or to debar individuals or entities were not taken by the
Compliance Division in 11 of 47 cases referred by the HUD OIG Office of Investigation.
Regulations at 2 CFR 180.705 and 180.850 provide the standards of evidence for suspensions
and debarments. The regulations permit suspension upon the receipt of an indictment and
debarment upon conviction or receipt of a civil judgment.

Example #1: A title agent was indicted on February 3, 2009, for closing fraudulent loans. The
referral for suspension from HUD OIG was received by the Compliance Division on October 19,
2009. A notice of suspension could have been issued because the indictment constituted
adequate evidence to immediately stop the title agent from doing business with HUD; however,
the division chose to wait until November 27, 2009, when the judgment and conviction
document was provided by OIG, to proceed with a proposed debarment. The notice of proposed
debarment was not issued until May 7, 2010, which was 198 days after the division received the
referral.

Example #2: A real estate agent, who knowingly and willingly submitted fraudulent
documentation for unqualified borrowers of Federal Housing Administration-insured loans, was
6
  Other than requiring the suspension official to promptly send out a notice of suspension, the regulations are silent
as to the amount of time that is permitted for sending out the notices. Regardless, notices should be sent promptly to
individuals or entities when it is determined a suspension is warranted or a debarment and/or suspension is
proposed.

                                                          8
indicted on June 20, 2008. The referral for administrative sanction from HUD OIG was received
by the Compliance Division, along with the “information” and “plea agreement” documents, on
July 30, 2008. A notice of suspension could have been issued immediately; however, the
division has not taken action to date. There is a note in the case file that states, “Hold for
Sentence 9/10/10.”

Example #3: Two HUD program recipients were indicted on August 22, 2007, and convicted on
September 19, 2008, of theft of government funds and false statements. The referral for
administrative sanction from HUD OIG was received by the Compliance Division on October 1,
2008. The indictment and conviction constituted adequate evidence to suspend and/or debar the
two individuals. However, the Compliance Division took 174 days to issue a notice of proposed
debarment and suspension, which was issued on March 25, 2009. The two HUD program
recipients appealed the proposed debarment and suspension. They were subsequently debarred
for 3 years, effective August 31, 2009, which was 330 days after the division received the case.

Notice of Final Determination

Notices of final determination for debarment were not issued in a timely manner due to late
follow-up by the assigned analyst with the docket clerk regarding the hearing status of
respondents. Regulations at 2 CFR 180.870 state that the debarring official must issue a written
decision regarding whether to debar within 45 days of closing of the official record. The official
record closes upon the debarring official’s receipt of final submissions, information, and findings
of fact, if any. A debarment is not effective until the debarring official issues a decision. We
reviewed 15 cases in which notices were sent by DEC’s Compliance Division to exclude
individuals, and of those notices, only two met the 45-day requirement. The remaining 13
notices were sent to the debarred individuals between 12 and 316 days beyond the 45-day
requirement (see the following table).

                    Notice of           45‐day final      Debarment     Days exceeding 
                    proposed           determination       effective        45‐day 
                 debarment date             date             date        requirement 
            1      7/30/2007             9/13/2007        10/11/2007          28 
            2      6/30/2009             8/14/2009        9/10/2009           26 
            3      5/14/2008             6/28/2008        7/30/2008           32 
            4      4/29/2009             6/13/2009        9/30/2009          107 
            5      4/29/2009             6/13/2009        4/29/2010          316 
            6      10/26/2006           12/10/2006        12/22/2006          12 
            7      1/25/2008             3/10/2008        3/26/2008           16 
            8      4/23/2009              6/7/2009        9/25/2009          108 
            9      1/15/2010              3/1/2010        4/29/2010           58 
           10      12/10/2007            1/24/2008        2/26/2008           32 
           11      7/13/2007             8/27/2007        11/15/2007          78 
           12      11/15/2007           12/30/2007        2/11/2008           41 
           13      10/1/2008            11/15/2008        12/9/2008           24 


                                                 9
Example (# 8 above): A straw buyer was indicted on February 27, 2007. The straw buyer was
suspended and then proposed for debarment. The notice of proposed debarment and
continuation of existing suspension was issued on April 23, 2009. The analyst did not ask the
docket clerk whether the respondent had requested a hearing until it was brought to the analyst’s
attention by HUD OIG on September 25, 2009, which was 152 days after issuance of the notice.
Further, the respondent did not appeal the proposed debarment. The notice of final
determination was issued that day. The effective date of the debarment exceeded the 45-day
final determination date by 108 days. It was an oversight on the part of the analyst.

Closeout Cases

Closeout cases were not closed in a timely manner. On average, DEC’s Compliance Division
took 309 days to close a case when it was determined that a suspension or debarment action was
not warranted. We reviewed 18 closeout cases, of which only 2 were closed within 60 days.
The remaining 16 (88 percent) cases took from 96 to 740 days to close as shown in the table
below.

              45       46 ‐       61 ‐       101 ‐                    366 
                                                         201 ‐                  Average 
             days       60        100         200                    days or                  Range 
                                                       365 days                  days 
            or less    days       days       days                     more
                                                                                             50 ‐ 740 
               0         2         1           6             3          6          309 
                                                                                              days 

Delays in Processing

Delays in processing of suspension and debarment referrals by DEC’s Compliance Division were
not only caused by limited staff resources and the lack of formal written policies and
procedures,7 but also by inadequate coordination and communication between the division and
its customers/partners.

HUD OIG: Cases were not always referred to the Compliance Division in a timely manner. Of
the 62 cases reviewed, 53 (47 by the Office of Investigation and 6 by the Office of Audit) were
referred by HUD OIG. Thirty-one (66 percent) of the 47 cases referred involving an indictment
and/or conviction were submitted more than 30 days after the individuals or entities had been
either indicted or convicted.

For example, a housing authority official was indicted on August 26, 2008, and convicted on
March 27, 2009. However, the division did not receive the referral for suspension from OIG
until September 17, 2009, which was 352 days after the submission due date for the indictment
and 141 days after the submission due date for the conviction.8 A referral for debarment was not

7
  Regulations at 2 CFR Part 180 require DEC to establish policies and procedures for the agency’s nonprocurement
debarment and suspension programs and activities that are consistent with OMB guidance. Lack of internal policies
leaves the timeliness of suspension and debarment open to interpretation.
8
  OIG policy at the time required submission of referrals for administrative sanctions as soon as practicable during
an investigation. To determine a due date for submission based on the date of indictment or conviction, we used 30
days.

                                                        10
made by OIG. The DEC analyst retrieved the judgment and conviction document from Public
Access to Court Electronic Records (PACER)9 and proceeded with a proposed debarment.

Further, HUD OIG did not respond to the division’s requests in a timely manner and sometimes
not at all. For example, in two cases, when the assigned analyst requested additional information
from OIG, responses were not received. The analyst had to seek alternative means to obtain the
needed information.

HUD Office of Program Enforcement and Hearing Official:10 The waiting period for appeals
was protracted. When the notice of proposed debarment is issued, the respondent has 30 days to
contest the proposed debarment. The respondent may request an informal hearing. We reviewed
five cases in which the respondents chose to contest their proposed debarments. The waiting
period for the hearings took an average of 140 days, with one case taking 206 days.

Also, the deliberation period between the hearing and the suspension and debarring official
determination was lengthy. According to 2 CFR 180.870, the debarring official must issue a
written decision regarding whether to debar within 45 days of closing of the official record. The
official record closes upon the debarring official’s receipt of final submissions, information, and
findings of fact, if any. We noted that the suspension and debarring official did not make a
decision within the required 45-day timeframe in three of the five cases reviewed. On average,
the suspension and debarring official took 57 days to reach a decision; in one case it took 75
days.

HUD program offices: Obtaining concurrence from HUD program offices increased the
processing time for suspension and debarment referrals considerably. When the notice of
suspension or notice of proposed debarment is drafted, the notice goes through HUD’s Office of
Program Enforcement (OPE) for legal sufficiency review. In some cases, the concurrence from
the respective HUD program office is recommended before proceeding to the suspension or
proposed debarment action. If this is the case, the assigned analyst contacts the appropriate
HUD program office to obtain concurrence.

       Example #1: A Section 8 landlord was indicted on February 27, 2007, and the HUD OIG
        referral was received by DEC’s Compliance Division on March 19, 2007. The notice of
        suspension was processed within a reasonable amount of time by the division. Also, the
        notice of proposed debarment and continuation of existing suspension was drafted in a
        timely manner after the judgment and conviction became available in PACER. However,
        before the division could proceed with the proposed debarment, concurrence from PIH
        was needed according to OPE’s recommendation. A considerable amount of time (64
        days) had passed before the Compliance Division requested PIH’s approval.

9
  PACER is an electronic public access service that allows users to obtain case and docket information from Federal
appellate, district, and bankruptcy courts and the PACER Case Locator via the Internet. PACER is provided by the
Federal judiciary in keeping with its commitment to providing public access to court information via a centralized
service.
10
   OPE, within HUD OGC, provides legal support to the Compliance Division. OPE reviews all suspension and
debarment notices for legal sufficiency before sending them to the respondents. In addition, OPE schedules
hearings for individuals or entities who wish to appeal a suspension or debarment. Further, OPE attorneys represent
HUD during hearings.

                                                        11
         Communications started on November 29, 2007. The response from PIH was not
         received by the division until January 17, 2008, 48 days later.

        Example #2: A housing authority contractor was indicted on January 22, 2008. Before
         the Compliance Division could proceed with a proposed debarment, concurrence from
         PIH was needed. The concurrence was requested on March 27, 2008. The response was
         not received until September 17, 2008, 170 days later. E-mail trails revealed that the
         division’s request was forwarded to multiple PIH officials before concurrence was
         obtained.

Interagency Suspension and Debarment Committee and other Federal agencies: Coordination
with the Interagency Suspension and Debarment Committee (ISDC) and other Federal agencies
also increased the processing time for suspension and debarment referrals. When the indictment
cites more than one Federal agency, the agencies involved may consider designating one agency
as the lead agency to pursue the suspension or debarment action. ISDC was established by
Executive Order 12549 to coordinate the efforts of the lead agency. However, we found that the
coordination was protracted and by the time the approval was obtained from other agencies, the
suspension was no longer feasible.

As discussed above, a housing authority contractor was indicted on January 22, 2008. Before
DEC could proceed with a proposed debarment, the Director of the Compliance Division
suggested that concurrence be obtained from the U.S. Department of Education (ED). The
analyst contacted the point of contact at ED and the vice chair of ISDC. Communications started
on March 27, 2008, with concurrence obtained on January 8, 2009, more than 281 days later.
During this period, the DEC analyst drafted the suspension notice. However, because
coordination took too long, the analyst was asked to put the case on hold until the subject was
convicted.

Observation 2 - Federal Requirements for Entry of Excluded Parties Were
Not Met
Information on 14 (40 percent) of 35 individuals against whom DEC took a suspension and/or
debarment action were not entered into EPLS by the Compliance Division within 5 working days
as required.11 As a result, there was an increased risk that the Federal Government’s interests
were not protected. The suspended or debarred individuals could potentially have been awarded
contracts or financial subsidies from HUD or other Federal agencies since a search of EPLS
would not reveal that these individuals had been excluded.




11
   Regulations at 2 CFR 180.520(c) generally requires Federal agency officials who take actions to exclude persons
or officials who are responsible for identifying disqualified persons to enter information about those persons into
EPLS within 5 working days after (1) taking an exclusion action, (2) modifying or rescinding an exclusion action,
(3) finding that the person is disqualified, or (4) finding that there has been a change in status of a person who is
listed as disqualified.

                                                         12
    Late Entries

    Of the 62 cases reviewed, DEC took suspension and/or debarment actions against 35 individuals
    or entities. Searches in EPLS revealed that information for 14 (40 percent) of the 35 excluded
    individuals or entities had not been entered into the database in a timely manner.

    For the 14 individuals, 16 suspensions (7) and/or debarments (9) were not entered into EPLS
    within the 5 working days as required. The days elapsed ranged from 6 to 114 days for
    suspensions and 1 to 394 days for debarments. For two individuals (#4 and #7 below), entry of
    suspension and debarment information entered in EPLS occurred after OIG informed the
    Compliance Division that the information was missing. The following table provides the results
    for the 14 individuals.

                       Suspension                                            Debarment 
                    Date                                                  Date                                
                                  Entered      Days                                          Entered      Days 
    Suspended    Due in EPLS     into EPLS    elapsed      Debarred    Due in EPLS          into EPLS    elapsed 
 1  3/25/2009     4/1/2009      4/23/2009        16        8/31/2009     9/7/2009          3/22/2010       140
 2                                                         9/10/2009    9/17/2009           1/7/2010        80
 3  10/1/2008   10/8/2008  10/7/2008             0         9/30/2009    10/7/2009          1/7/2010         66
 4                                                          7/9/2010    7/16/2010           8/4/2010        13
 5  10/24/2007 10/31/2007 10/24/2007             0         9/25/2009   10/2/2009           1/7/2010         69
 6   9/6/2007   9/13/2007  9/11/2007             0         2/26/2008     3/4/2008           3/5/2008         1
 7  12/19/2008 12/26/2008  1/5/2009              6         1/29/2009     2/5/2009          8/11/2010       394
 8  10/1/2008   10/8/2008  10/7/2008             0         12/9/2008   12/16/2008          1/5/2009         14
 9                                                          4/3/2009    4/10/2009          4/14/2009         2
10  7/24/2009   7/31/2009   1/7/2010           114
11  9/10/2009   9/17/2009   1/7/2010           80                                       
12  4/30/2010    5/7/2010   6/2/2010            18
13  1/14/2009   1/21/2009   2/3/2009            9
14  7/27/2009    8/3/2009   1/7/2010           113                                      

    The late EPLS entries were caused by (1) clerical oversight due to limited staff resources, (2)
    lack of formal policies and procedures, and (3) password confusion. On January 7, 2010, the
    Compliance Division became aware that EPLS entries had not been entered for about 6 months
    due to password confusion. A review was conducted by the division, and all EPLS entries for
    that period were made.

    Observation 3 - Record Keeping Needs Improvement
    Suspension and debarment case files consist of correspondence, memorandums, and other
    documents pertaining to the suspension or debarment of an individual. These records may also
    contain sensitive and/or personally identifiable information. Of the 83 referrals selected for
    review, the Compliance Division was unable to locate 21 of the related case files and had to

                                                      13
reconstruct two case files that were provided.12 Also, DEC’s policies and procedures for the
retention and disposition of related suspension and debarment records had not been formalized.13

Without controlled access and handling to safeguard against a breach of information, sensitive
and/or personally identifiable information may be disclosed. Absent a complete record of the
deliberative process used to take or deny a suspension or debarment action, there is an increased
risk that DEC did not consider all relevant information. Also, insufficient record keeping makes
it difficult for DEC to provide a basis for its actions.

Missing Case Files

The Compliance Division was unable to provide case files for 21 (25 percent) of 83 suspension
and/or debarment referrals selected for review. The 21 missing case files represented 7
completed cases, 9 closeouts, and 5 cases in process. Seven of the case files were archived;
however, the division could not retrieve the files because their location was unknown. In
addition, 2 of the 63 case files provided by the division were reconstructed because the original
files could not be located. Both cases were assigned to the same analyst.

According to Compliance Division officials, limited staff resources have made it difficult for the
division to “…keep up with the demand for filing and archiving of records that is inherent with
an office that has the volume of work…[the division has]. In this situation, it is inevitable that
records will on occasion be misfiled and/or misplaced.” Further, there are instances in which
entry of information into CTS does not require a corresponding hardcopy record.

                                            Recommendations
Delays in the processing of suspension and debarment actions and late entry of information on
excluded individuals or entities into EPLS ultimately places HUD and other Federal agencies at
an increased risk of awarding contracts, grants, and other subsidies to unethical, dishonest, and
irresponsible parties. Further, missing case files makes it difficult for DEC to support suspension
or debarment actions taken or denied. To improve the effectiveness of HUD’s suspension and
debarment program, steps must be taken by DEC to ensure timely suspension and debarment
actions.

We recommend that the Director of HUD’s Departmental Enforcement Center

     1. Develop formal written policies and procedures for the Compliance Division to ensure
        that suspension and debarment referrals are processed consistently and in a timely



12
   GAO/AIMD-00-21.3.1, November 1999. Under GAO’s [the Government Accountability Office] Standards for
Internal Controls in the Federal Government, internal controls and all transactions and other significant events need
to be clearly documented, and the documentation should be readily available for examination. The documentation
should appear in management directives, administrative policies, or operating manuals and may be in paper or
electronic form. All documentation and records should be properly managed and maintained.
13
   Regulations at 36 CFR 1220.32 require agencies to create and maintain authentic, reliable, and usable records and
ensure that they remain so for the length of their authorized retention period.

                                                         14
   manner in accordance with 2 CFR Parts 180 and 2424. The policies and procedures
   should require but are not limited to

   A. Sending suspension and debarment notices to excluded individuals or entities
      promptly after receipt of referrals and/or charging documents.

   B. Following the standards of evidence (i.e., indictment for suspension and conviction or
      civil judgment for debarment) provided under the Federal regulations for taking
      suspension and debarment actions.

   C. Sending notices of final determination for debarments to excluded individuals or
      entities within 45 days of closing of the official record as required.

   D. Entry of information on suspended and debarred individuals or entities into EPLS
      within 5 working days as required.

2. To effectively address the volume of cases referred to the Compliance Division with its
   limited staff resources, ensure that the policies and procedures include ways to improve
   the efficiency of the suspension and debarment process. The Director should incorporate
   internal controls and process validation for the various phases and steps involved,
   ensuring that individuals or entities are suspended and debarred in a timely manner (e.g.,
   establish queues by case type, implement deadlines for phase and step(s) completion,
   prepare results/status reports for management oversight, perform periodic reconciliation
   of suspension and debarment information to EPLS).

3. Develop department wide guidance that provides general procedures to ensure that
   suspension and debarment actions are processed consistently and in a timely manner.
   The guidance should outline the responsibilities and department wide procedures to be
   followed. For example, when the Compliance Division requests information or seeks
   concurrence for a suspension or debarment action from a customer/partner, there should
   be a timeframe established for response to the division’s request.

4. Establish a uniform record keeping system that provides for a complete historical record
   of the suspension and debarment process and results and ensures that the records,
   regardless of format, are protected in a safe and secure environment and removal or
   destruction is carried out only as authorized in accordance with established records
   schedules for retention and disposition.




                                           15
                             Comments and OIG Response
We provided a draft copy of the report to HUD’s General Counsel on October 12, 2010. The
DEC generally agreed with our observations and concurred with the related recommendations
(appendix A). We recognize the DEC’s efforts to improve its processing of suspension and
debarment referrals and consider the planned corrective actions to be responsive to
recommendations 1 through 4. However, the recommendations remain open pending
verification of corrective actions. OIG will follow-up with the DEC to determine the status of
the corrective actions taken.




                                               16
Appendix A – HUD Departmental Enforcement Center’s Comments14




14
     Names of individuals contained within in the body of the response have been redacted.

                                                          17
18
19
Appendix B – Suspension and/or Debarment Referrals – October 1, 2006, Through
December 9, 2009

                           Referral source                Number of cases 
            HUD OIG  
               Office of Investigation                        763    841 
               Office of Audit                                 78 
            HUD OGC                                                  52 
            HUD Homeownership Centers (HOC)                
               Atlanta HOC                                    12 
               Philadelphia HOC                               12     35 
               Denver HOC                                     9 
               Santa Ana HOC                                  2 
            HUD PIH                                                  22 
            HUD DEC satellite offices 
               Chicago satellite office                        4      6 
               Los Angeles satellite office                    2 
            HUD CPD                                                   3 
            HUD FHEO                                                  1 
            HUD field office referral                                 3 
            HUD regional office referral                              1 
            Other                                                     9 
            DOJ                                                       5 
            Total                                                    978 




                                              20
Appendix C – Suspension and Debarment Process

The process described by DEC’s Compliance Division to determine whether a referral for
administrative sanction warrants a suspension and/or debarment consists of 5 phases, with a total
of 11 steps. The first phase begins with step 1, the receipt of a referral for administrative
sanction. If an administrative sanction is deemed appropriate, the process is completed during
the fifth phase with step 11, entry of information on an excluded (suspended or debarred)
individual or entity into EPLS.

                           Phase I – Suspension Notice Development Phase

Step 1. Receipt of Referral

When a referral is received from a “customer” (e.g., HUD program office), the Director of the
Compliance Division reviews the referral and assigns it to an analyst. The administrative
assistant then enters the header information (name, address, occupation of the participant, etc.)
into CTS. The referral is then forwarded to the assigned analyst.

Step 2. Verification of Information

The analyst assembles the administrative folder (case file) and then enters basic information into
CTS and verifies the information as an official chronological record. At the same time, the
analyst reviews the referral for essential documents and legal charging documents such as
indictment, information, judgment, etc. For fact-based cases, the analyst reviews the information
submitted and determines whether additional information is needed to support the administrative
sanction. If additional documents are required, the analyst contacts the appropriate program
officials to locate the necessary documents.

For all referrals, the analyst quickly establishes a HUD nexus by answering three questions:

     1) Is the individual or entity in the referral a HUD participant?15
     2) What was the covered transaction(s)?
     3) Does the referral relate to a mandatory grant award? (If yes, then this could potentially
        be a closeout because of Executive Order 12549.16 If the case becomes a closeout due to
        the grant source being nondiscretionary, a closeout memorandum will be sent to the
        originating source of the referral.)

In cases in which an individual or entity was previously suspended by DEC, a termination of
suspension letter is prepared and sent to that individual or entity.

Next, the analyst researches and verifies other pertinent background information such as the last
known address with the Federal Bureau of Prisons or the U.S. Marshals Service if the defendant

15
   Participant means any person who submits a proposal or who enters into a covered transaction, including an agent
or representative of a participant.
16
   Executive Order 12549, “Debarment and Suspension,” explicitly states that it does not cover “direct Federal
statutory entitlements or mandatory awards.”

                                                        21
is in custody. Also, the analyst performs a search for affiliates in Lexis-Nexis and the respective
department of state Web page where the individual or entity is located.

If the indictment also cites, along with HUD, other Federal agencies, coordination with other
Federal agencies and ISDC may be needed.17 If a particular Federal agency is contemplating a
legal action, HUD would wait on the sanction.

                               Phase II – Suspension Concurrence Phase

Step 3. Concurrence From HUD Program Office

If an individual or entity violated the rules of a HUD program, concurrence for suspension needs
to be obtained from the respective HUD program office. For example, if a Section 8 landlord is
indicted, concurrence is obtained from PIH before a suspension notice can be prepared.

Step 4. Creation of Notice of Suspension

The analyst creates the notice of suspension and forwards it to the Director of the Compliance
Division for review. The Director initials the notice and forwards it to OPE for a legal
sufficiency review.

Step 5. Hearing

The suspension notice allows the individual or entity (respondent) to contest a suspension within
30 days after the respondent received the notice.18 If a respondent wishes to contest the
suspension, OPE appoints an attorney to represent HUD. During a hearing, the respondent
presents information and his/her argument to the hearing official. The hearing official then
decides whether a genuine dispute over facts exists. If a genuine dispute over facts does not
exist, the suspending official determines that the respondent should be suspended.

If during the hearing the respondent raises a genuine dispute over facts to the suspension, the
respondent has an additional opportunity to contest the suspension. The suspending official must
conduct a fact-finding proceeding to resolve the dispute.

Step 6. Suspending Official’s Determination

After the hearing, the hearing official will make a recommendation to the suspending official.
The suspending official will then make a decision regarding whether to suspend the respondent.




17
   ISDC was created by Executive Order 12549. It facilitates lead agency coordination, serves as a forum to discuss
current suspension- and debarment-related issues, and assists in developing unified Federal policy. ISDC serves as a
regulatory drafting body for revisions to the governmentwide nonprocurement suspension and debarment common
rule.
18
   The respondent is a person against whom a Federal agency has initiated a debarment or suspension action.

                                                        22
                              Phase III – Opening Pending Phase

The opening pending phase is the period between the issuance of a suspension and receipt of the
conviction. During this period, the analyst routinely monitors the criminal case through the
PACER Web site. This monitoring is required since the forwarding of conviction/sentencing
documents can be overlooked by the referrer.

DEC’s Compliance Division processes two types of referrals, criminal-based and fact-based.
The criminal-based cases are generally referred by HUD OIG’s Office of Investigation, and the
court documents are usually submitted with the referrals. With criminal-based cases, minimal
background research and information verification are required. On the other hand, the fact-based
cases are usually referred by HUD’s program offices and OIG’s Office of Audit. The referral
can start out as an article in the newspaper, which requires the analyst to “build the case” by
researching additional information to ensure that adequate evidence exists to pursue an
administrative sanction. The criminal-based cases can be processed more quickly as the fact-
based cases require additional time.

                          Phase IV – Debarment Concurrence Phase

Step 7. Creation of Proposed Debarment Notice

After the receipt of the conviction, the analyst creates the proposed debarment notice. While
preparing the notice, the analyst determines whether the individual’s or entity’s actions warrant a
debarment of 3 years or longer. In the case of longer debarments, the analyst must substantiate
reasons for a longer debarment in a memorandum to the DEC Director. After the proposed
debarment notice has been reviewed and sent to the respondent, the analyst contacts the docket
clerk in OPE within 45 days to find out whether the respondent has requested a hearing.

Step 8. Hearing

The proposed debarment notice allows the respondent to contest a proposed debarment within 30
days after the respondent received the notice. As with suspension, if a respondent wishes to
contest the proposed debarment, OPE appoints an attorney to represent HUD. During a hearing,
the respondent presents information and his/her argument to the hearing official. The hearing
official then decides whether a genuine dispute over facts exists. If a genuine dispute over facts
does not exist, the debarring official determines that the respondent should be debarred.

If during the hearing, the respondent raises a genuine dispute over facts to the debarment, the
respondent has an additional opportunity to contest the proposed debarment. The debarring
official must conduct a fact-finding proceeding to resolve those facts.

Step 9. Debarring Official’s Determination

After the hearing, the hearing official will make a recommendation to the debarring official. The
debarring official will then make a decision regarding whether to debar the respondent.



                                                23
Step 10. Creation of Debarment Notice

After 45 days, the analyst checks with the docket clerk from OPE to find out the status of the
appeal. If the respondent has not appealed, the final debarment notice is prepared and mailed to
the respondent. If the respondent has appealed the debarment, the analyst contacts the docket
clerk to obtain the status of the hearing. At the conclusion of the appeal process, the docket clerk
provides a copy of the debarring official’s determination to the analyst.

                             Phase V – Governmentwide Exclusion

Step 11. Excluded Parties List System

After an individual or entity has been suspended or debarred, the information on the excluded
individual or entity is entered into EPLS.




                                                24