HUD Management
HUD's High-Risk Program Areas and Management Challenges Gao ID: GAO-02-869T July 24, 2002This testimony discusses the high-risk program areas and management challenges at the Department of Housing and Urban Development (HUD). For many years, management and oversight weaknesses have made its programs vulnerable to fraud, waste, abuse, and mismanagement. The current administration has placed improving HUD's management among its highest priorities and wants to remove the high-risk designation from all HUD programs by 2005. Human capital management is the most pressing management challenge facing HUD. HUD has begun the initial stages of workforce planning; it has completed its resource estimation and allocation process, which estimates the staff needed to handle the current workload in each office, and a detailed analysis of potential staff losses due to retirement. However, the Department does not have a comprehensive workforce plan. Effective acquisition management is of increasing importance because, as HUD downsized its staff, it relied more and more on outside contractors to accomplish its mission. HUD has made progress in the past few years improving its acquisition management practices, but it faces the challenge of ensuring that, where it relies on contractors to perform its mission, it will hold these contractors accountable for results. Responsive programmatic and financial management information systems are critical to HUD's ability to meet its mission, deliver key services, and establish sufficient management control over its programs and operations. GAO first reported some of HUD's current problems in 1984, and its recent work shows that these weaknesses continue to adversely impact the Department's ability to monitor and effectively ensure the integrity of its single-family mortgage insurance and rental assistance programs.
GAO-02-869T, HUD Management: HUD's High-Risk Program Areas and Management Challenges
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Testimony:
Before the Subcommittee on Housing and Transportation, Committee on
Banking: U.S. Senate:
For Release on Delivery Expected at 2:30 p.m. Wednesday
July 24, 2002
HUD Management: HUD‘s High-Risk Program Areas and Management
Challenges:
Statement of Stanley J. Czerwinski
Director, Physical Infrastructure:
GAO-02-869T:
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to discuss the high-risk program areas
and management challenges facing the Department of Housing and Urban
Development (HUD). HUD‘s programs affect the lives of millions of
Americans. HUD makes housing more affordable for about 4.8 million low-
income households by insuring loans for owners of multifamily rental
housing and providing rental assistance. It helps to revitalize
America‘s communities by assisting over 4,000 localities through its
community development programs. It encourages homeownership by
providing mortgage insurance for about 7 million homeowners who
otherwise might not have been able to qualify for loans--managing about
$500 billion in insured mortgages and $604 billion in guarantees of
mortgage-backed securities. To accomplish its missions, HUD relies on
the performance and integrity of thousands of mortgage lenders,
contractors, property owners, public housing agencies, communities, and
others to administer its programs. Effective oversight and strong
management are critical to ensure that HUD‘s reliance on these third
parties results in the effective and efficient stewardship of federal
funds and the accomplishment of the Department‘s mission and program
goals.
For many years, HUD has been the subject of criticism for management
and oversight weaknesses that have made its programs vulnerable to
fraud, waste, abuse, and mismanagement. In 1997, HUD undertook the 2020
Management Reform Plan, a complex and wide-ranging effort designed to,
among other things, refocus HUD‘s mission, strengthen accountability,
and eliminate fraud, waste, abuse and mismanagement from its programs.
In January 2001, we recognized the credible progress that HUD had made
in improving its management and operations, and we reduced the number
of HUD program areas deemed to be high risk to two of its major program
areas--single-family mortgage insurance and rental housing
assistance.[Footnote 1] These program areas comprise about two-thirds
of HUD‘s budget. The current Administration has placed improving HUD‘s
management among its highest priorities and has set a goal to remove
the high-risk designation from all HUD programs by 2005. This is
therefore an appropriate time to review HUD‘s progress toward
addressing these high-risk program areas and the challenges it faces in
sustaining the progress that has been made as HUD moves toward its goal
to become a high-performing agency that provides quality service to its
customers.
My testimony today discusses the major management challenges we see
facing HUD, as well as the progress HUD has made over the past few
years addressing its challenges, and the steps it is continuing to take
to address them. First, my testimony discusses the challenges HUD faces
improving accountability and control over its high-risk program areas.
Second, it addresses the challenges that HUD faces that cut across all
its program areas--especially its efforts to improve accountability and
control over its high-risk program areas--in the areas of (1) managing
human capital, (2) managing acquisitions, and (3) improving
programmatic and financial management information systems. My testimony
today draws on a body of work, including recent reports we have issued
on various HUD programs, our work on HUD‘s human capital management
that is being released today at this hearing,[Footnote 2] our
assessment of HUD‘s strategic and performance plans, and a series of
assignments we have ongoing at the request of this Subcommittee. It
also draws on work we have done on management reform initiatives and
performance-based organizations across both the federal and private
sectors.
In summary:
* HUD‘s single-family mortgage insurance and its rental housing
assistance program areas are at high risk of waste, fraud, abuse, and
mismanagement. In January 2001 we reported that, while HUD had made
credible progress addressing its management deficiencies, significant
weaknesses in these two program areas remained--areas comprising about
two-thirds of the department‘s budget. To correct weaknesses in its
single-family mortgage insurance programs, we reported that HUD needed
to improve, among other things, its oversight of lenders and
appraisers. To ensure the integrity of its rental housing assistance
programs, HUD needed to take actions, including ensuring that providers
of rental housing maintain housing that is in decent, safe, and
sanitary condition. The President‘s Management Agenda contains
initiatives to address these and other weaknesses; and HUD has
developed plans, including goals and timetables, for taking action on
them. In addition to our ongoing reviews of HUD‘s programs, we plan to
review these plans and monitor HUD‘s progress in the months ahead. We
will report on the results of our review in January 2003, when we will
assess HUD‘s progress as part of our Performance and Accountability and
High-Risk Series update.
* Human capital management--and the need for a strategic approach to
managing HUD‘s staff--is the most pressing crosscutting management
challenge facing HUD. HUD downsized its staff from about 13,500 to
9,000 over the last decade, and its human capital challenges are
exacerbated by demographics that suggest that by August 2003, about
half of its professional workforce will be eligible to retire. HUD has
begun the initial stages of workforce planning; it has completed its
resource estimation and allocation process, which estimates the staff
needed to handle the current workload in each office, and a detailed
analysis of HUD‘s potential staff losses due to retirement. However,
the Department does not have a comprehensive workforce plan. Elements
that we have reported are necessary for comprehensive workforce
planning--but are missing from HUD‘s workforce planning--include, among
other things, an analysis of what work its staff should be doing; the
knowledge, skills, and abilities needed by staff to do this work; the
appropriate staff deployment across the organization, and strategies
for identifying and filling gaps. Without more comprehensive workforce
planning, HUD is not as prepared as it could be to recruit and hire
staff needed to pursue its mission.
* Effective acquisition management is of increasing importance because,
as HUD downsized its staff, it relied more and more on outside
contractors to accomplish its mission. Over a 4-year period HUD‘s
spending on outside contracting increased about 62 percent, and HUD
officials have estimated that the total number of contractor staff
assisting in delivering HUD services may nearly equal its own. HUD has
made progress in the past few years improving its acquisition
management practices; but it faces the challenge of ensuring that,
where it relies on contractors to perform its mission, it will hold
these contractors accountable for results. Successfully meeting that
challenge affects the successful delivery of HUD‘s programs, the
effective deployment of its staff, and its ability to ensure the
integrity of its single-family and rental housing assistance programs.
Holding contractors accountable for results requires processes and
practices in place to effectively monitor contractors‘ performance, an
acquisition workforce with the right workload, training and tools to
carry out its mission, and programmatic and financial management
information systems that support HUD‘s efforts to ensure accountability
in its acquisitions.
* Responsive programmatic and financial management information systems
are critical to HUD‘s ability to meet its mission, deliver key
services, and establish sufficient management control over its programs
and operations. Concerns about the weaknesses in HUD‘s programmatic and
financial management information systems are not new--we first reported
some of HUD‘s current problems in 1984--and our recent work shows that
these weaknesses continue to adversely impact the Department‘s ability
to monitor and effectively ensure the integrity of its single-family
mortgage insurance and rental assistance programs. For example, to
oversee lenders in HUD‘s single-family mortgage insurance program,
staff at the Department‘s homeownership centers must collect and
manually compile information from multiple systems to target high-risk
lenders--increasing the likelihood that problems will go unnoticed. In
addition, concerns about the ability of HUD‘s financial management
systems to effectively support the timely preparation and audit of the
department‘s annual financial statements are long-standing; and as of
today, HUD is still in the early stages of developing a plan for
resolving them. Accordingly, developing a plan to substantially improve
programmatic and financial management information systems to meet the
Department‘s needs and comply with federal financial system
requirements is crucial to HUD‘s efforts to successfully address its
high-risk program areas.
HUD‘s High-Risk Areas: The Single-Family Mortgage Insurance and Rental
Housing Assistance Programs:
HUD‘s single-family mortgage insurance and its rental housing
assistance program areas, comprising nearly two thirds of the
Department‘s budget, are at high risk of waste, fraud, abuse, and
mismanagement.[Footnote 3] In January 2001, we reported that, various
factors, including a strong economy, had resulted in the accumulation
of capital reserves of about $16.6 billion on HUD‘s Federal Housing
Administration (FHA)-insured home loans. However we also reported that
FHA lost about $1.9 billion during fiscal year 2000 on the sale of
foreclosed homes that it had insured. In addition, we found other
problems with HUD‘s management of its single-family program. For
example, HUD was experiencing significant problems with the performance
of contractors responsible for maintaining and selling the single-
family properties HUD acquires through foreclosure. We found most of
these contractors had trouble securing and maintaining properties in
proper condition--and HUD eventually terminated the contractor
responsible for about 40 percent of the properties. If HUD‘s acquired
properties are not properly secured and maintained, they can contribute
to a neighborhood‘s decay, particularly as they age.
Figure 1: Conditions of Foreclosed HUD Single-Family Houses:
[See PDF for image]
Source: GAO photographs taken during site visits to 16 single-family
properties.
[End of figure]
Overall, we identified several opportunities wherein HUD could
strengthen FHA‘s single-family mortgage insurance program, including
strengthening the integrity of the single-family loan origination
process, promoting better monitoring of lenders, appraisers, and
contractors, and implementing effective human capital policies to
ensure that sufficient staff with the right skills are available to
carry out FHA‘s mission.
For HUD‘s rental housing assistance programs, we noted that HUD
continued to face challenges in ensuring that only eligible families
occupy housing units; that those families are paying the correct rents;
and that providers of rental housing maintain housing that is in
decent, safe, and sanitary condition. More recently, we have reported
that HUD‘s field offices frequently did not follow the Department‘s
procedures for ensuring that owners of HUD-assisted multifamily
properties are correcting physical deficiencies identified in
inspections by HUD‘s Real Estate Assessment Center (REAC). Our analysis
focused on approximately 500 properties that REAC determined were in
substandard condition and that HUD‘s field offices subsequently
classified as repaired. On the basis of our site visits to a sample of
these properties, we estimated that for about half of the properties
covered by our analysis, at least 25 percent of the deficiencies that
REAC classified as ’major“ or ’severe“ had not been corrected. This
problem occurred because HUD staff were classifying the properties as
repaired, without obtaining required repair plans and certifications of
repairs from the owners and because some owners and managers reported
completing repairs that had not been made.[Footnote 4]
Figure 2: Conditions Found at Public Housing Properties:
[See PDF for image]
Source: GAO photographs taken during site visits to five housing
authorities.
[End of figure]
Overall, our January 2001 report concluded that, to address this high-
risk area, HUD must continue its efforts to develop adequate
information systems that ensure that (1) correct rental housing
subsidies are paid and (2) complete actions on our recommendations
aimed at improving the quality of contractors‘ physical inspections of
the condition of public and multifamily housing.
HUD has been addressing its high-risk challenges and the
recommendations of our earlier reports. HUD‘s 2020 Management Reform
Plan resulted in major changes throughout the Department as it worked
to resolve its management challenges. In reviewing the progress of the
plan in October 2001, we noted that some of HUD‘s initiatives were
achieved relatively quickly and are producing results.[Footnote 5] For
example, the consolidation of some of its oversight and processing
functions into several new centers--as part of HUD‘s efforts to
consolidate and streamline its operations--had perhaps been the most
successful. The new REAC enabled HUD to complete the first physical and
financial assessments of its assisted housing inventory, while HUD
reported that the creation of its Departmental Enforcement Center
resulted in the restoration of 41,344 housing units to decent, safe,
and sanitary conditions in fiscal year 2000, compared with 968 in
fiscal year 1999. Other efforts to improve the efficiency of HUD‘s
operations and improving accountability, met with more limited success,
and were hampered by inefficient distribution of staff and workload, a
lack of resources for program monitoring, problems with contractor
performance and its oversight of contractors, and weaknesses in
programmatic and financial management information systems.
The current administration took office in January 2001, saying it was
dedicated to maintaining HUD‘s progress, and placing improved
management among the Department‘s highest priorities. Eighteen months
ago, Secretary Martinez came before this Committee and said:
’My first priority will be for HUD to continue to put its own house in
order, so we have the institutional fortitude to provide the housing
and community renewal opportunities needed by so many families and so
many neighborhoods. The Department of Housing and Urban Development
must be healthy itself, if we are to deal with the challenges before
us. And while former HUD Secretaries Kemp, Cisneros, and Cuomo have
built a foundation for strength, there are a great many areas of
institutional weakness that must be addressed. GAO and the HUD Office
of Inspector General have identified similar program and management
areas needing the most improvement, including: the Federal Housing
Administration‘s single family mortgage insurance risk; the impact and
continuing evolution of HUD‘s 2020 management reform effort; and the
failure to integrate financial and information systems.“:
According to HUD‘s most recent performance plan, the Department is
using our reports and those of its Inspector General as a ’roadmap“ for
making management improvements. In August 2001, the Administration
unveiled the President‘s Management Agenda, including a set of HUD-
specific initiatives to strengthen management of HUD‘s programs by,
among other things, improving FHA‘s management of risks throughout the
mortgage insurance process, improving the performance of public housing
agencies and providers of multifamily housing, and reducing overpaid
rent subsidies. The plan contained specific goals and timetables to,
for example, eliminate most if not all fraud in the appraisal process,
increase the percentage of HUD-assisted public housing units meeting
physical standards, and reduce overpayment of rent subsidies by at
least one-half. The plan also establishes a goal of removing our high-
risk designation from all HUD programs by 2005.
To further its efforts to improve its management, HUD also recently
undertook a series of organizational realignments. According to HUD,
these efforts are designed to streamline its organization, establish
clear lines of responsibility and reporting, and more effectively
administer its programs. One of the more prominent realignments
involved moving HUD‘s REAC, responsible for physical and financial
inspections of public housing and assisted multifamily properties. The
REAC, which formerly reported to the Deputy Secretary, now reports to
the Assistant Secretary for Public and Indian Housing. In addition, the
Department‘s Enforcement Center, which formerly reported to the Deputy
Secretary, now reports to HUD‘s General Counsel. Similarly, the Chief
Procurement Officer, which formerly reported to the Deputy Secretary,
now reports to the Assistant Secretary for Administration. In addition,
regional directors in the field have been given additional discretion
to redeploy staff to address workload imbalances. According to HUD
officials, to more effectively administer HUD‘s programs, other centers
and offices are being studied for elimination or consolidation.
As I discussed earlier, clearly the creation of the REAC and the
Enforcement Center, to name two, were positive developments that
yielded real results.[Footnote 6] And, it is worth noting that at the
time HUD established these centers, it did so because it believed that
the Office of Public and Indian Housing and the Office of Housing--the
offices within HUD that were originally responsible for these
activities--were not effectively carrying out these functions. The
Secretary, as the leader of his organization, has the prerogative to
align the organization as he sees fit, consistent with his vision and
management style. But it is important that the progress made to date
not be jeopardized. For example, regardless of how REAC is aligned, HUD
must continue to make progress improving the physical condition of
public and assisted multifamily housing properties. Ultimately the
success or failure of any organizational decision will be viewed in
that light.
We are now beginning to address these realignment issues as we assess
the progress HUD and other federal agencies have made as part our
Performance and Accountability and High-Risk Series. In making our
determination of high risk at HUD and other federal agencies, we will
consider the corrective measures that agencies have planned or have
underway to resolve their management challenges, as well as the status
and effectiveness of these actions. Some of the key factors we will
consider in making our high-risk determination at HUD include the
extent to which HUD has demonstrated commitment to resolving its
management deficiencies, strengthened controls to address its
management deficiencies, proposed appropriate corrective action plans
for its remaining management challenges, implemented effective
solutions that will be substantially completed in the near term, and
implemented solutions that get to the root cause of its management
deficiencies.
We will review the current status of HUD‘s single-family mortgage
insurance and its rental housing assistance program areas and the
actions taken to address weaknesses. At that time, the agency must have
demonstrated concrete results, with a clear path toward addressing any
remaining problems. To conduct our assessment of high risk, we will
review, among other things, HUD‘s strategic plans, annual performance
plans and reports, accountability reports, and audited financial
statements. This information will be supplemented by relevant GAO
reports, Inspector General reports, and other independent analysis.
Finally, the ultimate determination will be based on the independent
and objective judgment of GAO analysts.
HUD Faces Crosscutting Management Challenges:
As HUD works to improve accountability and control over its high-risk
program areas, it will find that it faces several issues that cut
across its efforts to improve its programs. I would like to turn now to
these management challenges and discuss with you, HUD‘s progress and
challenges in the areas of (1) human capital management, (2)
acquisition management, and (3) programmatic and financial management
information systems. Successfully addressing these challenges will help
determine whether HUD can sustain the progress of its management reform
efforts, address its high-risk program areas, and make progress toward
its goal of becoming a high-performing organization.
Human Capital Is the Most Pressing Management Challenge Facing HUD:
Human capital permeates virtually every effort to improve HUD‘s
programs, including its ability to oversee the performance of housing
authorities and property owners, acquire needed systems, and
successfully execute and monitor contracts. Insufficient staffing and
inefficient distribution of workload affects HUD‘s ability to operate
efficiently and ensure the accountability of its programs. It increases
HUD‘s need to hire contractors to perform activities and affects its
ability to oversee contractors and hold them accountable for
performance. HUD has the opportunity to develop a strategic human
capital management approach to ensure that the Department has the right
staff in the right numbers with the right skills in the right places
and that HUD can continue to meet its mission and goals in the future
as large numbers of experienced employees retire. As we have previously
reported,[Footnote 7] a comprehensive workforce plan should be linked
to the accomplishment of an agency‘s mission and include the following
elements:
* the kind of work its staff should be doing now and in the future;
* the knowledge, skills, and abilities needed by staff to do this work;
* the capabilities and developmental needs of the current staff;
* the appropriate staff deployment across the organization;
* any gaps that exist in knowledge, skills, and abilities; and:
* an approach for filling the gaps in the knowledge, skills, and
abilities of staff through recruiting and hiring.
While HUD has begun to do workforce planning by identifying the
resources required to do its current work, the Department does not have
a comprehensive workforce plan. HUD‘s most significant workforce
planning activity to date has been its Resource Estimation Allocation
Process (REAP). The purpose of REAP was to systematically estimate the
number of employees HUD needs to do its work based on its current
workload and operations and HUD used the results to estimate staffing
level ceilings for the Department‘s fiscal year 2003 proposed budget.
HUD‘s workforce planning effort is currently focused on responding to
major human capital deficiencies that the Office of Management and
Budget identified in a 2001 evaluation conducted as part of the
President‘s Management Agenda. This effort is focused on specific
initiatives, such as reducing the number of HUD managers and
supervisors, and does not consider many of the elements that we have
endorsed as necessary for comprehensive workforce planning.
In the absence of a comprehensive workforce plan, HUD faces myriad
human capital challenges ensuring that it has the right mix of staff
with the requisite knowledge, skills, and abilities appropriately
deployed across its organization. In July 2001, we reported that HUD‘s
Homeownership Centers, responsible for carrying out FHA‘s single family
mortgage insurance program, faced staffing and workload imbalances and
lacked an adequately standardized training curriculum. It also faced
skill mix difficulties--for example, managers at the Centers said that
it was a challenge for their staff to shift from performing insurance
endorsements and property disposition activities to monitoring
contractors that now do this work for HUD. In our survey of HUD
managers for our January 2001 report, over 70 percent stated that staff
training needed to be increased in the areas of information systems,
technical skills and other areas.
Without a comprehensive workforce plan, the Department will not be as
prepared as it could be to recruit and hire staff needed to pursue its
mission. During the 1990s, HUD underwent considerable downsizing,
reducing its staff from around 13,500 to about 9,000 by March 1998. The
need to recruit and hire is exacerbated by the upcoming wave of
potential retirements that HUD faces. More than 80 percent of HUD‘s
workforce is in the core professional grades--GS 9 through 15; and, by
August 2003, half of this workforce will be eligible to retire. HUD has
done little outside hiring in the last decade and some vacant positions
have gone unfilled while others have been filled through lateral
transfers, promotions, or the upward mobility of administrative staff
into professional positions. HUD is delegating more hiring authority to
its regional directors and has established an internship program that
may help address some staffing shortages. However, the internship
program is in the early stage of its development and does not address
the needs for hiring at the mid-level ranks of government that could be
disproportionately affected by the impending wave of potential
retirements.
Acquisition Management Challenges Remain:
A second crosscutting challenge area for HUD is its management of
acquisitions. As you know, Mr. Chairman, by design HUD relies on the
performance and integrity of thousands of intermediaries such as
mortgage lenders and public housing agencies to fulfill its mission.
But as HUD has downsized its own staff over the past few years, its
reliance on private contractors has increased substantially. This
reliance, as measured by contracting obligations, grew by more than 62
percent from fiscal year 1997 to fiscal year 2000; and HUD officials
have estimated that the total number of contractor staff assisting in
delivering HUD services may nearly equal its own. As a result,
effective management of acquisitions is crucial to HUD‘s success in
meeting its mission and addressing its high-risk single-family mortgage
insurance and rental housing assistance program areas. Ineffective
oversight of contractors adversely effects HUD‘s ability to carry out
its mission and to deliver key services and exposes HUD‘s programs to
the additional risk of fraud, waste, abuse, and mismanagement. HUD
faces the challenge of ensuring that, where it relies on contractors to
perform its mission, it will hold these contractors accountable for
results. Holding contractors accountable for results requires processes
and practices in place to effectively monitor contractors‘ performance,
an acquisition workforce with the right workload, training and tools to
carry out its mission, and programmatic and financial management
information systems that support HUD‘s efforts to ensure accountability
in its acquisitions.
HUD has undertaken a number of actions over the past few years to (1)
improve the processes and practices in place to effectively monitor
contractors‘ performance, (2) improve the training and professional
development of it acquisition workforce, and (3) improve its
contracting information systems. While progress has been made, our
recent and ongoing work suggests that HUD is still experiencing
difficulties in each of these areas and thus faces continued challenges
in its ability to hold contractors accountable for results. For
example:
* to improve monitoring, HUD provided guidance to its employees to
incorporate more systematic methods into its monitoring efforts,
including the use of risk-based assessments to focus HUD staff efforts.
In fiscal year 2000--around $600 million of the almost $1.3 billion in
contracts were for contracts supporting HUD‘s single-family and
multifamily housing programs. On the single-family side, we have
reported numerous problems over the past few years in HUD‘s oversight
of its contractors handling the marketing and management of HUD‘s
single-family properties,[Footnote 8] as well as those performing
oversight of lenders and appraisers.[Footnote 9] More recently we have
been examining property management contracts in HUD‘s multifamily
housing program. From our ongoing work, it appears that few of the
staff overseeing HUD‘s multifamily housing program property management
contracts use monitoring plans or employ risk-based strategies to
determine the necessary level and frequency of monitoring. We have
observed that oversight and monitoring of contractors are largely
remote--consisting mainly of E-mails, telephone calls, and reviews of
contractors‘ progress reports--and site visits to properties by HUD
staff do not occur routinely. Our ongoing work indicates that, absent a
systematic approach to monitoring and with a limited amount of on-site
monitoring occurring, HUD‘s ability to effectively monitor contractors‘
performance and identify and correct problems may be limited.
* to improve the training and professional development of its
acquisition workforce, among other things, HUD created full-time
government technical representatives (GTR)[Footnote 10] to help oversee
contracts, provided this staff with new training, and required that
their training and qualifications be formally certified. However, HUD‘s
progress in strategically managing its acquisition workforce has been
slow. For example, we recently learned that HUD managers were not aware
of 143 staff members who were performing the GTR function and had not
received the appropriate training. Our work suggests that HUD‘s
training records are poorly maintained, making it difficult for its
managers to know which staff have received training and thus where to
focus scarce resources. HUD has not yet used the results of its REAP
study to remedy disparities that it has identified in the contracting
workload within the Office of the Chief Procurement Officer, and a plan
to identify critical skills and career paths for its acquisition
workforce has been in draft for over 2 years. Like HUD‘s overall human
capital challenges, HUD‘s ability to hold its contractors accountable
for performance depends, in no small part, on its success in building
an acquisition workforce with the right workload, training, and tools
to carry out HUD‘s mission.
* to improve its contracting information systems HUD implemented a
single system--HUD‘s Procurement System--to track contract
obligations, milestones, and contractor performance. However our
ongoing work suggests that this system does not adequately support
HUD‘s managers or acquisition workforce because the data it contains
are not complete, accurate, or consistent. As a result, Mr. Chairman,
staff overseeing contractors in HUD‘s multifamily program reported
relying primarily on spreadsheets and other informal systems they have
created and maintained in order to monitor contract milestones and task
orders. These informal systems are not subject to HUD‘s internal
controls, audits, information security protocols, or other standards
and thus expose HUD‘s contract activity to internal control weaknesses
and the potential for waste, fraud, abuse, and mismanagement. In
addition, HUD managers do not have reliable information on the number
of active contracts it is managing or the amount of funds that have
been obligated for them, and cannot readily determine how much money
HUD has spent overall on its contracting activities. Finally,
performance data that would assist in evaluating contractor performance
is not systematically tracked in HUD‘s Procurement System, although the
system allows such activity. HUD‘s ability to manage and monitor its
acquisition activities is limited by weaknesses in its programmatic and
financial management information systems, which are needed to ensure
accountability in its acquisitions.
At this Subcommittee‘s request, Mr. Chairman, we are continuing our
work on HUD‘s acquisition management and will be reporting to you on
the results of this work in September 2002. We are examining potential
improper payments at HUD, including in its multifamily housing
acquisition activities, and will be issuing our report on this subject
later this year.
Programmatic and Financial Management Information Systems Challenges
Are of Long-standing and Continuing Concern:
Finally, Mr. Chairman, the effectiveness of HUD‘s programmatic and
financial management information systems continue to raise concerns.
Responsive programmatic and financial management information systems
are critical to HUD‘s ability to meet its mission, deliver key
services, and establish sufficient management control over its programs
and operations. As our work has shown, ineffective programmatic and
financial management information systems adversely impact HUD‘s
programs and operations and its staff‘s ability to effectively monitor
its programs, recipients, and contractors. They also limit HUD‘s
ability to collect accurate information to report on program results
and effectively manage its operations. Concerns about the ability of
HUD‘s financial management systems to effectively support the timely
preparation and audit of the department‘s annual financial statements
are long-standing, and as of today, HUD is still in the early stages of
developing a plan for resolving them. Accordingly, developing a plan to
acquire and implement programmatic and financial management information
systems that meet the Department‘s needs and comply with federal
financial system requirements is crucial to HUD‘s efforts to
successfully address its high-risk program areas.
Mr. Chairman, concerns about the effectiveness of HUD‘s programmatic
and financial management information systems are not new. We have
reported that HUD lacks the programmatic and financial management
information systems necessary to ensure accountability over its
programs since 1984. This February, for the eleventh year in a row,
HUD‘s Inspector General cited the lack of an integrated financial
management system in compliance with federal financial system
requirements as a material weakness in its audit of the Department‘s
financial statements. HUD is aware that its programmatic and financial
management information systems pose serious challenges and has taken
steps to address them. For example, HUD has undertaken extensive
efforts to modernize both HUD‘s and FHA‘s programmatic and financial
management information systems, improve financial reporting, institute
a more rigorous planning and review process over its information
technology capital investments, and bring FHA‘s systems into compliance
with federal financial systems requirements. HUD is preparing to obtain
contractor assistance to help analyze its current status and develop
plans for improving the Department‘s financial management systems and
providing the needed support to its programs.
Our recent work and that of the Department‘s Inspector General has
shown however, that despite efforts to improve its programmatic and
financial management information systems, serious challenges still
exist. HUD‘s systems do not today fully support its programs--including
its single-family mortgage insurance and rental assistance programs--
nor effectively support the timely preparation and audit of the
Department‘s annual financial statements. For example:
* To oversee lenders in HUD‘s single-family mortgage insurance program,
staff at the Department‘s homeownership centers must collect and
manually compile information from multiple systems and sources in order
to target high-risk lenders for review and to identify and investigate
potential fraud cases. As we reported in October 2001, this creates a
greater risk of error and increases the likelihood that problems will
go unnoticed.[Footnote 11]
* To review and approve applications for mortgage insurance on
multifamily properties, HUD uses, in some cases, an expedited process
where lenders, rather than HUD, underwrite the loans. However, our
ongoing work on HUD‘s Multifamily Accelerated Processing program
suggests that HUD‘s system for tracking the status of multifamily loan
applications does not allow it to reliably track and record several key
processing steps in the accelerated approval process. As a consequence,
HUD field staff develop and maintain spreadsheets and other informal
systems to monitor the status of HUD‘s actions.
* HUD‘s efforts to ensure that only eligible families occupy housing
units and that those families pay the correct rents--a key component of
its strategy to address its high-risk program areas--were, according to
HUD‘s Inspector General, impeded by limitations in its information
systems. In particular, the Inspector General reported that the lack of
complete, current, consistent information on tenants and rents limited
HUD‘s ability to effectively conduct computerized income matching--a
strategy that has been used to identify and deter tenants who
underreport their incomes and to address some of the causes of the
estimated $2 billion in overpayments and errors on rent subsidy
calculations. For this and other reasons, the Inspector General raised
concerns about the effectiveness of HUD‘s income matching
program.[Footnote 12]
* HUD continues--due in large part to deficiencies in its financial
management systems--to rely on extensive ad hoc analyses and special
projects to develop account balances and necessary disclosures for the
Department‘s annual financial statements, according to HUD‘s Inspector
General. These extensive efforts indicate that HUD‘s financial
management systems cannot currently provide the day-to-day information
needed by its managers to effectively manage and monitor the
department‘s programs.
* HUD needs high-quality software for the systems it uses to support
its financial management needs as well as its single-family mortgage,
rental housing assistance, and other program needs. In September 2001,
we reported that HUD‘s success or failure in acquiring software depends
largely on specific individuals, rather than on well-defined and
disciplined software acquisition management practices. Until this is
strengthened, HUD is exposed to a higher risk that software intensive
acquisition projects will not consistently meet mission requirements,
perform as intended, or be delivered on schedule and within
budget.[Footnote 13]
Mr. Chairman, we are continuing to review HUD‘s progress in improving
its financial management systems and plan to report to you on these
issues by December 2002.
In conclusion, Mr. Chairman, HUD‘s management reform efforts over the
past few years resulted in major changes throughout the Department as
it worked to resolve its management challenges. HUD has been moving
forward over the past few years and has made credible progress, and the
current administration has reaffirmed an emphasis on and commitment to
improving management at the Department. However, despite this progress
and renewed commitment, HUD still faces considerable challenges in
ensuring that its continuing management reform efforts will amount to
the sustainable improvements in performance needed to resolve
weaknesses in its high-risk program areas. Successfully addressing the
crosscutting challenges in the areas of human capital, acquisition
management, and programmatic and financial management information
systems can help determine whether HUD can sustain the progress it has
made, meet its challenges, and make progress toward its goal of
becoming a high-performing organization.
This concludes my prepared statement. I will be happy to respond to any
questions you or the other members of the Subcommittee may have.
Contacts and Acknowledgements:
For further contacts regarding this testimony, please contact Stanley
J. Czerwinski at (202) 512-2834. Individuals making key contributions
to this testimony included Amy Bevan, Jeannie Bryant, Susan Campbell,
Steve Cohen, Debra David, Colin Fallon, David Gill, Deborah Knorr, John
McGrail, and Phillip McIntyre:
Related GAO Products:
HUD Human Capital Management: Comprehensive Strategic Workforce
Planning Needed (GAO-02-839, July 24, 2002).
Public Housing: HUD and Public Housing Agencies‘ Experiences with
Fiscal Year 2000 Plan Requirements (GAO-02-572, May 31, 2002).
Mortgage Financing: Actuarial Soundness of the Federal Housing
Administration‘s Mutual Mortgage Insurance Fund (GAO-02-671T,
Apr. 24, 2002).
Single-Family Housing: Opportunities to Improve Federal Foreclosure and
Property Sale Processes (GAO-02-305, Apr. 17, 2002).
Public Housing: New Assessment System Holds Potential for Evaluating
Performance (GAO-02-282, Mar. 15, 2002).
Homelessness: Improving Program Coordination and Client Access to
Programs (GAO-02-485T, Mar. 6, 2002).
Multifamily Housing Finance: Funding FHA‘s Subsidized Credit Programs
(GAO-02-323R, Feb. 1, 2002).
Federal Housing Assistance: Comparing the Characteristics and Costs of
Housing Programs (GAO-02-76, Jan. 31, 2002).
Single-Family Housing: Current Information Systems Do Not Fully Support
the Business Processes at HUD‘s Homeownership Centers
(GAO-02-44, Oct. 24, 2001).
HUD Management: Progress Made on Management Reforms, but Challenges
Remain (GAO-02-45, Oct. 31, 2001).
HUD Information Systems: Immature Software Acquisition Capability
Increases Project Risks (GAO-01-962, Sept. 14, 2001).
Homeownership: Problems Persist With HUD‘s 203(k) Home Rehabilitation
Mortgage Insurance Program (GAO-01-1124T, Sept. 10, 2001).
Single-Family Housing: Better Strategic Human Capital Management Needed
at HUD‘s Homeownership Centers (GAO-01-590, July 26, 2001).
Federal Housing Programs: What They Cost and What They Provide (GAO-01-
901R, July 18, 2001).
Multifamily Housing: Issues Related to Mark-to-Market Program
Reauthorization (GAO-01-800, July 11, 2001).
Department of Housing and Urban Development: Status of Achieving Key
Outcomes and Addressing Major Management Challenges
(GAO-01-833, July 6, 2001).
HUD Inspector General: Actions Needed to Strengthen Management and
Oversight of Operation Safe Home (GAO-01-794, June 29, 2001).
HUD Multifamily Housing: Improved Follow-up Needed to Ensure That
Physical Problems Are Corrected (GAO-01-668, June 21, 2001).
Multifamily Housing: Issues Related to Mark-to-Market Program
Reauthorization (GAO-01-871T, June 19, 2001).
Mortgage Financing: Actuarial Soundness of the Federal Housing
Administration‘s Mutual Mortgage Insurance Fund (GAO-01-527T, Mar. 20,
2001).
Mortgage Financing: Actuarial Soundness of the Federal Housing
Administration‘s Mutual Mortgage Insurance Fund (GAO-01-526T, Mar. 19,
2001).
Mortgage Financing: FHA‘s Fund Has Grown, but Options for Drawing on
the Fund Have Uncertain Outcomes (GAO-01-460, Feb. 28, 2001).
Major Management Challenges and Program Risks: Department of Housing
and Urban Development (GAO-01-248, Jan. 2001).
FOOTNOTES
[1] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Housing and Urban Development, GAO-01-248
(Washington, D.C.: Jan. 2001).
[2] U.S. General Accounting Office, HUD Human Capital Management:
Comprehensive Strategic Workforce Planning Needed, GAO-02-839
(Washington, D.C.: July 24, 2002).
[3] GAO-01-248.
[4] U.S. General Accounting Office, HUD Multifamily Housing: Improved
Follow-up Needed to Ensure That Physical Problems Are Corrected,
GAO-01-668 (Washington, D.C.: June 21, 2001).
[5] U.S. General Accounting Office, HUD Management: Progress Made on
Management Reforms, but Challenges Remain, GAO-02-45 (Washington, D.C.:
Oct. 31, 2001).
[6] HUD‘s 2020 Management Reform Plan created several new centers to
consolidate, among other things, HUD‘s single family mortgage insurance
activities, Section 8 program financial management support, and the
processing, reviewing, and awarding of categorical and formula grants
for the Office of Public and Indian Housing. These centers were
discussed in greater detail in our October 2001 report.
[7] GAO-02-45.
[8] U.S. General Accounting Office, Single Family Housing: Stronger
Measures Needed to Encourage Better Performance by Management and
Marketing Contractors, GAO/RCED-00-117 (Washington, D.C.: May 12,
2000).
[9] U.S. General Accounting Office, Single Family Housing: Stronger
Oversight of FHA Lenders Could Reduce HUD‘s Insurance Risk, GAO/
RCED-00-112 (Washington, D.C.: Apr. 28, 2000); U.S. General Accounting
Office, Single Family Housing: Weaknesses in HUD‘s Oversight of the FHA
Appraisal Process, GAO/RCED-99-72 (Washington, D.C.: Apr. 16, 1999).
[10] The government technical representative acts as the Contracting
Officer‘s representative concerning the technical and performance
aspects of a contract. He or she is responsible for ensuring that the
contractor is using the most efficient and cost effective methods and
is also the principal judge of contractor performance, including the
quality and timeliness of work and products.
[11] U.S. General Accounting Office, Single Family Housing: Current
Information Systems Do Not Fully Support the Business Processes at
HUD‘s Homeownership Centers,
GAO-02-44 (Washington, D.C.: Oct. 24, 2001).
[12] Office of Inspector General, Audit of U.S. Department of Housing
and Urban Development (HUD) Financial Statements for Fiscal Years 2001
and 2000, 2002-FO-0003 (Washington D.C.: Feb. 27, 2002).
[13] U.S. General Accounting Office, HUD Information Systems: Immature
Software Acquisition Capability Increases Project Risks, GAO-01-962
(Washington, D.C.: Sept. 14, 2001).
