Major Management Challenges and Program Risks
Department of Housing and Urban Development Gao ID: GAO-03-103 January 1, 2003This report addresses the major management challenges and program risks facing the U.S. Department of Housing and Urban Development (HUD) as it works to carry out its multiple and highly diverse missions. The report discusses the actions that HUD has taken and that are under way to address the challenges GAO identified in its Performance and Accountability Series 2 years ago. Also, GAO summarizes the challenges that remain, new ones that have emerged, and further actions that GAO believes are needed.
GAO-03-103, Major Management Challenges and Program Risks: Department of Housing and Urban Development
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Performance and Accountability Series:
January 2003:
Major Management Challenges and Program Risks:
Department of Housing and Urban Development:
GAO-03-103:
A Glance at the Agency Covered in This Report:
The Department of Housing and Urban Development‘s complex and diverse
mission is to promote:
* adequate and affordable housing by making homeownership more
accessible and less expensive;
* the development of affordable and decent rental housing for low-
income
families;
* economic opportunity by supporting community and economic development
efforts, including strengthening and expanding community partnerships,
providing capital to create and retain jobs, and improving economic
conditions in distressed communities; and
* a suitable living environment, free from discrimination, by enforcing
fair housing laws and educating lenders, landlords, and tenants in
complying with the laws.
The Department of Housing and Urban Development‘s Budgetary and Staff
Resources
[See PDF for image]
a Budgetary resources include new budget authority (BA) and unobligated
balances of previous BA. Budgetary resources exclude unobligated
balances
from the FHA-Mutual Mortgage and Cooperative Housing Insurance Funds,
FHA-General and Special Risk Insurance Funds and Guarantees of
Mortgage-
Backed Securities Liquidating Accounts.
b Budget and staff resources are actuals for FY 1998-2001. FY 2002 are
estimates from the FY 2003 budget, which are the latest publicly
available figures on a consistent basis as of January 2003. Actuals for
FY 2002 will be contained in the President‘s FY 2004 budget to be
released
in February 2003.
Source: Budget of the United States Government.
[End of figure]
This Series:
This report is part of a special GAO series, first issued in 1999
and
updated in 2001, entitled the Performance and Accountability Series:
Major
Management Challenges and Program Risks. The 2003 Performance and
Accountability Series contains separate reports covering each cabinet
department, most major independent agencies, and the U.S. Postal
Service.
The series also includes a governmentwide perspective on
transforming the
way the government does business in order to meet 21st century
challenges
and address long-term fiscal needs. The companion 2003 High-Risk
Series:
An Update identifies areas at high risk due to either their
greater
vulnerabilities to waste, fraud, abuse, and mismanagement or major
challenges
associated with their economy, efficiency, or effectiveness. A list
of all
of the reports in this series is included at the end of this report.
GAO Highlights:
Highlights of GAO-03-103, a report to Congress included as part of
GAO‘s
Performance and Accountability Series
Why GAO Did This Report:
In its 2001 performance and accountability report on the U.S.
Department
of Housing and Urban Development (HUD), GAO identified two of
HUD‘s major
program areas”single-family mortgage insurance and rental
housing
assistance”as high risk. GAO also reported that HUD faced major
management
challenges concerning its human capital and programmatic and
financial
management information systems. The information GAO presents
in this
report is intended to help to sustain congressional attention
and a
departmental focus on continuing to make progress in addressing
these
challenges and ultimately overcoming them.
What GAO Found:
HUD has made progress since January 2001 in addressing
identified
weaknesses in its high-risk program areas and management
challenges
but significant challenges remain. GAO is maintaining the
department‘s
single-family mortgage insurance and rental housing assistance
program
areas as high risk at this time. In the single-family mortgage
insurance program, HUD has, among other things, developed new
processes
to review lenders and appraisers and implemented new incentives
to improve
the performance of its property disposition contractors.
However, many of
HUD‘s strategies for resolving problems in its high-risk program
areas
represent new initiatives in early stages of implementation, and
evidence
shows that significant problems remain. In its rental housing
assistance
programs, HUD estimates that rental subsidy overpayments”some $2
billion
out of $19 billion in assistance in fiscal year 2000”are greater
than
previously estimated; implementation of a new assessment system
for public
housing agencies has been delayed; and correcting housing
quality
violations remains problematic. HUD is in the early stages of
developing
a strategic human capital planning approach and has not yet
developed a
comprehensive plan to resolve serious, long-standing
programmatic and
financial management information system deficiencies.
GAO is retaining
human capital and programmatic and financial management
information systems
as major management challenges. In addition, GAO is
designating
acquisitions management as a new major management challenge
because of
HUD‘s extensive and growing reliance on contractors, as
well as
identified weaknesses in monitoring and oversight of these
contractors,
managing and training its acquisitions workforce, and
developing
information systems that support contracting. These management
challenges
cut across HUD‘s program areas and contribute to GAO‘s
high-risk
designations.
What Remains to Be Done:
HUD needs to
* improve management and oversight of its single-
family mortgage
insurance programs, to reduce risk of losses from loan
defaults or fraud;
* ensure that its rental housing assistance programs
operate
effectively and efficiently, specifically ensuring that
subsidy payments
are accurate, subsidy recipients are eligible, assisted
housing meets
quality standards, and contractors perform as expected;
and
* resolve issues concerning its programmatic and
financial management
information systems, human capital, and acquisitions
management.
www.gao.gov/cgi-bin/getrpt?GAO-03-103.
To view the full report, click on the link above.
For more information, contact Thomas J. McCool at (202)
512-8678 or
mccoolt@gao.gov.
Transmittal Letter:
Major Performance and Accountability Challenges:
GAO Contacts:
Related GAO Products:
Performance and Accountability and High-Risk Series:
This is a work of the U.S. Government and is not subject
to copyright
protection in the United States. It may be reproduced and
distributed
in its entirety without further permission from GAO. It
may contain
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Transmittal Letter January 2003:
The President of the Senate
The Speaker of the House of Representatives:
This report addresses the major management challenges and program risks
facing the U.S. Department of Housing and Urban Development (HUD) as it
works to carry out its multiple and highly diverse missions. The report
discusses the actions that HUD has taken and that are under way to
address the challenges GAO identified in its Performance and
Accountability Series 2 years ago. Also, GAO summarizes the challenges
that remain, new ones that have emerged, and further actions that GAO
believes are needed.
This analysis should help the new Congress and the administration carry
out their oversight responsibilities for HUD, helping to improve
government for the benefit of the American people. For additional
information about this report, please contact Thomas J. McCool,
Managing Director, Financial Markets and Community Investment, at (202)
512-8678 or at mccoolt@gao.gov.
David M. Walker
Comptroller General
of the United States:
Signed by David M. Walker
[End of section]
Major Performance and Accountability Challenges:
The Congress has long been concerned with management problems at HUD.
Over time, these have included an inefficient organizational structure,
inadequate human capital planning, and outdated and inefficient
information technology, as well as overlapping, complicated, and poorly
designed programs. At one time, the Congress was considering
dismantling HUD and transferring its programs to other
agencies.[Footnote 1] In recent years, HUD has undertaken various
management reform initiatives to address these deficiencies, a task
made difficult by the fact that the agency has a complex and diverse
mission and must work through thousands of intermediaries to deliver
its programs. As we have reported in recent years, HUD has made
progress toward overhauling its operations. The current leadership
faces the challenge of sustaining this progress in order to achieve the
department‘s goal of becoming a high-performing agency. As part of
efforts to address management challenges across the government, the
Office of Management and Budget presented the President‘s Management
Agenda for fiscal year 2002. In addition to the governmentwide
initiatives, the agenda includes agency-specific initiatives to address
the most significant management challenges. For HUD, the agenda
includes initiatives related in part to the department‘s high-risk
areas and management challenges identified by GAO: improving the
performance of housing intermediaries, reducing overpaid rent
subsidies, improving risk management at the Federal Housing
Administration (FHA), and strengthening program controls.[Footnote 2]
In our January 2001 report on HUD‘s management challenges and program
risks,[Footnote 3] we reported that HUD had made credible progress in
addressing some of its long-standing management deficiencies. For
example, HUD had completed its first physical inspections and financial
assessments of the inventory of assisted and insured multifamily
housing properties to assess the condition of these properties; taken
steps to develop an information technology (IT) investment management
process to improve and strengthen the selection, control, and
evaluation of IT projects; and piloted a new resource estimation and
allocation process to determine appropriate staffing levels.
Recognizing the progress HUD had made, and consistent with our criteria
for determining high risk, we redefined and reduced the number of HUD
programs deemed to be high risk. Specifically, because of the actions
HUD took to improve management controls, we concluded that community
planning and development programs were no longer at high risk. However,
because significant weaknesses persisted in two major program areas--
single-family mortgage insurance programs and rental housing assistance
programs--we retained their high-risk designations. Additionally, we
identified as major management challenges HUD‘s (1) programmatic and
financial management information systems and (2) human capital
management.
Since January 2001, HUD has made efforts to address weaknesses in its
high-risk and management challenge areas. In the single-family mortgage
insurance programs, HUD has developed new processes to review lenders
and appraisers and has implemented new incentives to improve the
performance of its single-family property disposition contractors. HUD
has also initiated a new effort to reduce rental housing assistance
overpayments. To improve its programmatic and financial management
information systems, HUD has deployed a new general ledger, improved
interfaces with legacy systems, and developed an IT investment
management program and a project management training program.[Footnote
4] To help address its human capital weaknesses, HUD has completed its
resource estimation and allocation process for determining appropriate
staffing levels and has begun a work measurement process to further
refine its resource allocation.
While we recognize HUD‘s progress, serious weaknesses remain in HUD‘s
high-risk programs, and some of its strategies for addressing these
problems are new initiatives that are in the early stages of
implementation. Consequently, we are maintaining the department‘s
single-family mortgage insurance and rental housing assistance program
areas as high risk at this time. For example, the single-family
mortgage insurance programs remain a high-risk area because of
continued weaknesses in the mortgage insurance process, evidence of
fraud, and the variety of management challenges HUD faces in
implementing corrective actions. Rental housing assistance also remains
a high-risk area because of evidence that overpayments due to errors in
determining rental assistance amounts are greater than previously
estimated, challenges in ensuring compliance with housing quality
standards, and delays in implementing a new assessment system for
public housing authorities. Programmatic and financial management
information systems and human capital are still major management
challenges. In addition, we are designating acquisitions management as
a new management challenge because of the agency‘s extensive and
growing reliance on contractors and third parties and deficiencies in
HUD‘s contractor monitoring and oversight, management of the
acquisitions workforce, and information systems that support
acquisitions.
Reduce the Risk of Losses in HUD‘s Single-Family Mortgage Insurance
Programs:
HUD‘s FHA administers programs aimed at making mortgage financing more
accessible to homebuyers, particularly low-income and first-time
homebuyers. To expand homeownership, FHA insures private lenders
against nearly all losses on mortgages that finance single-family
homes, managing about $500 billion in insured single-family
mortgages.[Footnote 5] FHA‘s insurance programs are dependent on the
actions of third parties--private lenders who make the loans,
appraisers contracted by those lenders, and contractors who manage the
property that FHA acquires when the borrower defaults on the mortgage
(fig. 1). While FHA insures lenders against nearly all losses resulting
from foreclosed loans, it relies on the lenders to underwrite the loans
and determine borrowers‘ eligibility for FHA mortgage insurance. The
loan amount that FHA can insure is based, in part, on the appraised
value of the home. The appraisal (1) determines the property‘s
eligibility for mortgage insurance on the basis of its condition and
location and (2) estimates the value of the property for mortgage
insurance purposes. The appraiser is required to identify any visible
deficiencies impairing the safety, sanitation, structural soundness,
and continued marketability of the property and to assess the
property‘s compliance with FHA‘s other minimum property standards.
Lenders making FHA-insured loans are required to select appraisers from
FHA‘s roster of state-licensed or -certified appraisers.
Figure 1: HUD and Third-Party Roles in FHA‘s Single-Family Mortgage
Insurance Process:
[See PDF for image]
[End of figure]
Because of weaknesses in FHA‘s processes and oversight, ineligible
buyers sometimes fraudulently obtain loans or foreclosed properties, or
loans are made on properties actually worth less than the loan amount,
increasing the risk of default and losses. Every year, thousands of
borrowers default on their FHA insured single-family mortgage loans.
When borrowers default, lenders may foreclose on the properties for
which the loans were secured, file claims against the FHA insurance
program, and convey the properties to HUD. HUD contracts with
management and marketing contractors to secure, maintain, and sell the
foreclosed properties. Further, if the properties are not properly
secured and maintained in a timely fashion, their condition can
deteriorate, resulting in lower sales prices and limiting FHA‘s ability
to recover its costs.
In January 2001 we reported that HUD and FHA had made considerable
progress in streamlining operations and making FHA‘s single-family
mortgage insurance programs more efficient.[Footnote 6] However, we
also reported that significant deficiencies remained and that because
of the value of the insurance programs, the variety of management
challenges FHA faces, and FHA‘s potential liability under these
programs, FHA‘s single-family mortgage insurance programs maintained
their high-risk designation. On the basis of our work and that of
others, we said that HUD needed to:
* further improve the management and monitoring of lenders, appraisers,
and property disposition contractors,
* ensure that sufficient staff are available and have the skills needed
to carry out FHA‘s mission, and:
* improve programmatic and financial management information systems.
Need to Improve the Management and Monitoring of Lenders, Appraisers,
and Property Disposition Contractors:
Since 2001, HUD has taken steps to improve its single-family mortgage
insurance operations, including overseeing lenders and appraisers. As
part of the President‘s Management Agenda, HUD is working to reduce the
risk of loss to FHA‘s insurance fund by holding lenders accountable for
the performance of brokers and appraisers and is including plans to
eliminate most, if not all, falsely inflated appraisals by 2004, taking
strong action when fraud is found in the program. More specifically,
the following steps have been taken:
* HUD has developed the Lender Assessment Subsystem (LASS), a Web-based
system that receives; collects; assesses; and scores financial,
compliance, and performance-related information from 7,500 FHA-
approved lenders to help HUD identify and measure the risk posed by
lenders to the insured portfolio. LASS replaces a manual process and
allows lenders to electronically submit annual audited financial
statements and program compliance information. HUD issued regulations
on August 15, 2002, which according to the department, requires that
lenders use LASS to submit their annual financial and compliance data,
beginning with those lenders having a September 2002 fiscal year end.
These first submissions were due to HUD December 31, 2002.
* In response to our recommendations,[Footnote 7] HUD is revising the
Credit Watch Program‘s regulations to cover lenders that underwrite
FHA-insured loans and have excessive default and claim rates, as well
as lenders that originate such loans.[Footnote 8] In addition, the
department is developing procedures and enhancing FHA‘s management
information systems to identify and select for technical reviews loans
and lenders that pose a high risk of financial loss to FHA.
* HUD has initiated the Single Family Appraiser Subsystem (SASS) to
review the quality of real estate appraisals. Among other things, HUD
has assigned approved appraisers to perform independent reviews of FHA
appraisals, and has had its Real Estate Assessment Center (REAC)
administer FHA appraiser testing. However, according to HUD, the
process as originally designed proved to be an inefficient means for
identifying poorly performing appraisers. The process resulted in a
high volume of automated reviews that identified only minor problems
and did not identify patterns of problems with appraisers. In fiscal
year 2001, SASS cost HUD about $20 million and resulted in the removal
of 23 appraisers. To address these concerns, HUD revised the process to
include focusing on appraisers rather than appraisals and moving the
function from REAC to the Office of Single Family Housing where staff
would have the expertise to review appraiser performance. Appraiser
reviews are based on known risk factors, such as an appraiser‘s
association with mortgages with high default and claim rates,
rehabilitation loans, and foreclosed properties. According to HUD, the
new targeted system resulted in the removal of 97 appraisers in fiscal
year 2002 at a cost of about $300,000.
* Based on our recommendation,[Footnote 9] HUD developed incentives and
penalties to encourage the management and marketing contractors to
reduce the number of properties that are in the inventory longer than 6
months. For example, the department now includes the selling of aged
properties in its performance evaluation of contractors. Generally, the
less time a property is in HUD‘s inventory, the less cost HUD bears.
HUD told us that the percentage of aged inventory decreased from 8.4
percent to 6 percent between fiscal year 2001 and fiscal year 2002.
* As part of the President‘s Management Agenda, HUD is working to
improve FHA‘s risk management and to increase amounts FHA recovers from
defaulted loans and foreclosed properties. Specifically, in fiscal year
2002 HUD initiated a demonstration program using mortgage loan purchase
and sale authority granted under the National Housing Act, as
amended,[Footnote 10] known as the 601 Accelerated Claim Disposition
Program. The intent of the demonstration project is to reduce
foreclosure claim losses by paying claims on loans considered most at
risk of foreclosure early in the default cycle and selling them to
private sector joint venture partners. On October 31, 2002, HUD awarded
Salomon Brothers Realty Corporation a 70 percent equity interest in a
joint venture to acquire, service, and dispose of 5,100 nonperforming
loans. According to HUD, these partnerships will help to restructure
mortgage notes to improve performance, accelerate the claims process,
and increase recoveries to the FHA fund and the department will
evaluate this demonstration project as it develops plans for subsequent
asset disposition demonstrations and permanent program implementation.
* In response to recommendations we made in June 1999 concerning
problems with the 203(k) Home Rehabilitation Loan Program, since
January 2001 HUD has taken actions to address weaknesses in insuring
home renovation loans.[Footnote 11] HUD developed specific procedures
for identifying high-risk 203(k) lenders and targeting them for annual
monitoring, issued guidance that set new standards and procedures for
consultants‘ participation in the 203(k) program, and issued guidance
that set uniform standards for nonprofit agency participation and re-
certification in all FHA activities. HUD issued regulations during 2002
to remove nonperforming 203(k) consultants and nonperforming nonprofit
organizations from the list of approved participants.
Although these improvements are under way, GAO and HUD‘s Inspector
General have continued to identify problem areas that increase FHA‘s
risk in its single-family mortgage insurance programs. More
specifically, the problem areas are as follows:
* In its latest semiannual report, HUD‘s Inspector General stated that
fraud in the origination of mortgages for single-family properties
continued to be the most pervasive problem uncovered by its
investigations.[Footnote 12] The Inspector General noted that a joint
investigation with the Federal Bureau of Investigation uncovered a 20-
person property-flipping scheme in Chicago, Illinois, that resulted in
21 indictments and convictions and 12 jail sentences. The report added
that the use of fraudulent documentation to qualify borrowers for FHA-
insured mortgages had led to criminal indictments and convictions in
several other communities.
* LASS is not yet calculating key financial indicators to determine
lenders‘ soundness and risk exposure as planned. Implementation of the
system has been delayed because the Office of Single Family Housing
does not yet have the technical capacity to support the function. HUD
is working to develop the electronic environment within the Office of
Single Family Housing to support the LASS function. HUD reports that
the LASS will be modified during fiscal year 2003.
* In June 2001, the Inspector General reported that HUD‘s Philadelphia
Homeownership Center needed to strengthen its monitoring of management
and marketing contractors and its existing follow-up procedures to
ensure that significant and recurring performance deficiencies were
reported and more closely monitored and tracked.[Footnote 13] As a
result of these deficiencies, contractor performance problems were not
corrected and subjected HUD to the higher risks associated with poor
property conditions. According to HUD, it is taking corrective actions
to address the Inspector General‘s concerns, including using a new
performance evaluation tool and taking action against one contractor.
HUD‘s reviews have indicated the need to better incorporate the results
of property inspections in assessments of contractor performance, and
the department is exploring options to use this information more
effectively.
* In September 2001, we testified that the 203(k) program requires
continued management attention and further improvements in
oversight.[Footnote 14] We had recommended that HUD improve its process
for identifying underwriting violations, notifying lenders of
violations, and imposing penalties. HUD agreed that lenders with poor
underwriting practices should be targeted for enforcement actions and
is in the process of hiring a contractor to assess the results of its
desk reviews of 203(k) lenders and develop criteria for evaluating the
risks associated with these lenders.
* In April 2002,[Footnote 15] we reported that FHA‘s foreclosure
process could be improved if FHA adopted a process more like that used
by other entities to reduce the time properties were not actively
managed. With a revised process, FHA could better ensure that
properties did not deteriorate and could recoup more of its losses when
the house was sold. We reported that FHA‘s foreclosure procedures (1)
prevented the timely initiation of critical property maintenance and
marketing of the kind practiced by the other organizations, (2) could
delay conveyance to FHA‘s management and marketing contractors because
of the time-consuming procedures necessary to perform maintenance that
exceeded established cost ceilings, and (3) resulted in disputes
between FHA servicers and management and marketing contractors after
the property was conveyed. We recommended that HUD establish unified
property custody--a method in which a single entity is responsible for
custody of a property after foreclosure through the sale to a new
homeowner--as a priority for FHA and that HUD determine the method for
unified custody that best ensures FHA borrowers continuing benefits
from loss mitigation and homeowner protections under state and federal
laws, provides appropriate incentives for limiting the time and expense
of acquiring and selling properties, and ensures that properties are
maintained to the benefit of the FHA insurance fund and communities.
HUD agreed with these recommendations and has considered proposals to
streamline FHA‘s foreclosure procedures, including issuing updated
guidance and policy to address the title approval process. However, HUD
has not revised its approach for accepting properties after foreclosure
as recommended due to concerns about the potential negative impact on
former homeowners and tenants and because statutory authority would
have to be amended, according to HUD. We continue to believe that
unified property custody would provide the most effective means for
acquiring and selling FHA foreclosed properties and, as we stated in
our April report, if this requires additional statutory authority, the
HUD Secretary should seek it.
Ensure Sufficient Staff with Needed Skills:
HUD has substantially reorganized its single-family function in recent
years, reducing the program‘s staffing levels and significantly
changing the nature of the jobs performed by HUD‘s single-family staff.
This situation has presented HUD with a continuing challenge to ensure
that it has adequate staff with the right skills to perform their jobs
effectively. We have found that staffing problems and skill imbalances
have contributed to weaknesses in the single-family mortgage insurance
programs.
For example, we reported in July 2001 that while HUD‘s four
homeownership centers had improved their services, staffing imbalances
had hampered the centers‘ operations.[Footnote 16] While HUD envisioned
leaving about a third of the centers‘ staff in field offices, nearly
half remained in 71 field offices across the country. In addition, the
deployment of staff across the centers was not consistent with their
workload. As a result, all four centers were having difficulty
supervising and making effective use of the staff in field offices, and
the Philadelphia center, which had the largest workload, had fewer
staff than two of the other centers. These imbalances existed because
HUD had assigned staff to the centers without performing a systematic
workload analysis and did not require staff to relocate from the field
to the centers as workloads shifted. Furthermore, as the centers
struggled to use their staff effectively, new initiatives, such as
fraud prevention efforts, have increased the centers‘ workload. To make
more effective use of their staff, the centers would like to eventually
move many field office positions to the centers as existing field staff
members leave or retire. According to HUD, the homeownership centers
are using the department‘s recently completed resource studies and
other workload information to adjust staffing plans at the centers.
Improve Programmatic and Financial Management Information Systems:
As we reported in October 2001, FHA‘s single-family information systems
do not adequately support the centers‘ efforts to oversee lenders and
contractors.[Footnote 17] Given the multibillion-dollar insurance risk
that FHA assumes annually, it is critical that the information systems
help the agency carry out its responsibilities efficiently and
effectively. FHA‘s homeownership centers use more than 20 different
information systems to oversee the work of lenders and contractors, and
homeownership center staff have developed specialized databases to
improve their ability to meet their responsibilities. As a result,
center staff must collect information from many different sources to
identify high-risk lenders for review and to identify and investigate
potential fraud cases. This situation creates a greater risk of error
and increases the likelihood that these problems will go unnoticed. In
addition, FHA‘s single-family information systems do not readily
provide information that the centers need to monitor the performance of
management and marketing contractors. For example, the homeownership
centers‘ systems do not generate the reports needed to monitor these
contractors‘ sale of properties under special programs that allow
police officers and teachers to purchase HUD-owned homes in certain
neighborhoods at a discount. HUD‘s Inspector General identified
evidence of potential fraud in these programs, causing HUD to suspend
the programs for 120 days.[Footnote 18] According to HUD, FHA will
undertake a new single-family integration project in 2003 to re-
engineer and integrate systems to address data needs of staff and
modernize its technical environment. The project will take several
years to complete.
In the audit of FHA‘s fiscal year 2001 financial statements,[Footnote
19] the independent auditors reported a material weakness related to
the financial management systems[Footnote 20]--that FHA‘s information
systems need to more effectively support its business processes.
According to the audit report, FHA is still conducting its day-to-day
business with legacy systems, which results in staff manually
processing and analyzing some financial transactions. The report
specifically noted that key systems, including the Single Family
Acquired Asset Management System and the Single Family Mortgage Notes
System, are maintained in local databases that are not integrated with
FHA financial management processes. This lack of integration increases
the level of manual processing needed and reduces both the overall
reliability of data and the efficiency of FHA personnel. Because of
this lack of integration, FHA is unable to manage financial
transactions in accordance with the Federal Financial Management
Improvement Act (FFMIA). FHA has taken steps to begin addressing these
problems, but the solutions are long term. For example, FHA implemented
a new general ledger on October 1, 2002, and plans to develop an
integrated financial management system over a 5-year period.
Increase Efficiency and Effectiveness of Rental Housing Assistance
Programs:
HUD encourages the development of affordable rental housing through a
wide range of incentives and assistance. Specifically, it provides (1)
mortgage insurance through FHA for the construction and rehabilitation
of multifamily developments; (2) grants for the development of housing
for the elderly, persons with disabilities, and public housing; (3)
project-based rental assistance to owners of insured and uninsured
multifamily projects; (4) operating subsidies to public housing
authorities to help finance the operations and maintenance costs of
housing projects; and (5) tenant-based vouchers for eligible households
to use in securing privately-owned housing. HUD is responsible for
ensuring that the insured and assisted properties remain in good
physical and financial condition, and that households receiving rental
assistance meet eligibility requirements and receive the proper amount
of assistance.
As it does in its single-family programs, HUD relies extensively on
third parties to carry out the rental housing assistance programs,
including public housing authorities, state housing finance agencies,
lenders, appraisers, landlords and property management contractors (see
table 1). HUD, through FHA, has about $55 billion in insured
multifamily mortgages-in-force and manages about $7 billion in capital
grants for housing for the elderly and persons with disabilities. HUD‘s
rental housing assistance programs are administered by about 4,500
housing agencies[Footnote 21] as well as under contracts covering about
22,000 privately owned properties.[Footnote 22] In fiscal year 2001,
HUD provided about $19 billion in rental subsidies to make housing
affordable for an estimated 5 million households. Despite the magnitude
of the assistance it provides, HUD is able to serve fewer than half of
those who are eligible for assisted housing. Ensuring that proper
subsidies are paid is necessary to maximize the number of families that
can be served.
Table 1: HUD Programs That Support Affordable Rental Housing:
Program: Multifamily Mortgage Insurance: about $55 billion for about
14,700 mortgages;[A] foreclosed property inventory of about $750
million, with estimated annual expenditures to manage and maintain of
about $214 million in FY 2001; about $2.2 billion in mortgage notes
being serviced.; What third party participants do: * Lender loans money
to developer.; * Developer constructs, purchases, or rehabilitates
affordable multifamily housing.; * If borrower defaults on loan,
* lender forecloses on property or conveys note to HUD, and;
* lender conveys property to HUD for disposition.; What HUD does:
* Insures lenders against risk of developer defaulting on loan.;
* Inspects construction.
* Pays claim to lender.
* Services the note to restore to financial soundness or forecloses.;
* Assigns property to property management contractor to maintain until
sold..
Program: Housing for the Elderly/Disabled (Section 202/811): funding
commitments of about $800 million per year as of the end of fiscal year
2001, with about $4 billion in unexpended obligated funds, about $2.8
billion in unobligated, unexpended balances; about $7.8 billion in
remaining balances from direct loans under the pre-1992 program.; What
third party participants do: * Sponsor applies for grant for
construction or rehabilitation.; * Owner constructs project.; *
Inspectors monitor progress of construction.; * Sponsor/owner must
comply with use agreements.; What HUD does: * Reviews and approves
grant.
; * Inspects throughout construction and contracts with inspectors for
assistance.; * Monitors throughout term of use agreement..
Program: Section 8 Project-based Rental Assistance (administered by HUD
staff and Section 8 contract administrators): work directly with about
22,000 property owners and agents; about $7 billion spent on 1.3
million units in fiscal year 2001.; What third party participants do: *
Landlord/property manager determines eligibility of applicants to
reside in assisted units.; * Landlord/property manager rents units to
eligible low-income tenants (including elderly or handicapped tenants)
who pay rent equal to 30 percent of their income or a minimum flat rent
of $25.; * Landlord/property manager verifies tenant income and submits
request for payments to HUD or contract administrators.; * Contract
administrator manages Section 8 contracts, submits bills to HUD, and
inspects properties.; What HUD does: * Pays landlord the difference
between the fair market rent and the tenant‘s portion of the rent.; *
Inspects properties to ensure they meet HUD‘s housing quality
standards.
; * Contracts with contract administrators to manage the Section 8
project-based program in some areas..
Program: Section 8 Housing Choice Voucher (administered by public
housing agencies): about $9.5 billion obligated in subsidies for about
1.97 million units in fiscal year 2001.; What third party participants
do: * Public housing agencies allot vouchers to eligible households.; *
Eligible households find privately owned housing willing to accept
vouchers.[B]; What HUD does: * Allots vouchers to local public housing
agencies.; * Pays public housing agencies the difference between the
fair market rent and the tenant‘s portion of the rent.; * Regulates and
monitors PHA performance..
Program: Public Housing (administered by public housing agencies): in
fiscal year 2001, about $3.2 billion spent in operating subsidies and
$3 billion spent in modernization to support about 3,200 public housing
agencies that manage about 1.2 million public housing units.; What
third party participants do: * Public housing agencies rent housing
units they own to eligible low-income tenants (including elderly and
handicapped) for rent equal to 30 percent of their income (or a minimum
rent up to $50) or a flat rent.; What HUD does: * Pays public housing
agencies to develop, maintain, and rehabilitate units.; * Provides
public housing agencies with funds to cover the difference between
operating costs and the tenants‘ rent.; * Inspects properties to ensure
they meet uniform physical condition standards..
Source: GAO and HUD.
Note: GAO presentation of HUD programs.
[A] Some of these loans are for health care facilities.
[B] In some markets, households with vouchers are unable to find
eligible units at rates they can afford and are unable to use the
vouchers.
[End of table]
In January 2001, we reported that HUD faced considerable management
challenges in closing the gap between the number of households needing
assistance and those that receive it, as well as in ensuring that
assisted housing complies with HUD standards. We noted that HUD‘s
rental housing programs were still high risk because of their size and
complexity and because improving the management of these programs would
allow HUD to provide assisted housing to more low-income households.
More specifically, we said that HUD had not yet ensured that:
* existing housing subsidies are received only by eligible households,
and households receive no more than the amounts to which they are
entitled;
* housing providers receiving assistance from HUD comply with HUD‘s
quality standards for housing that is decent, safe, sanitary, and in
good repair; and:
* its human capital management supported efforts to correct program
weaknesses.
Reduce Overpayments and Errors in Determining Rental Assistance:
Errors in determining rental assistance amounts can increase the
government‘s assistance payments, reduce the number of families who may
be assisted, and result in ineligible families retaining subsidized
units. In HUD‘s consolidated financial statement audit reports since
fiscal year 1995, HUD‘s Inspector General has reported as a material
internal control weakness that HUD needs to improve its efforts to
ensure it is paying correct rental assistance. Table 2 presents the
rental program expenditures and excess rental assistance HUD estimates
it paid for fiscal years 1996 through 2001.
Table 2: Estimated Excess Rental Assistance, Fiscal Years 1996-2001:
Dollars in millions.
1996; Estimated excess rental payments[B]: $538[C];
Program expenditures: $19,257;
Percentage of excess assistance: 2.8%.
1997; Estimated excess rental payments[B]: $804;
Program expenditures: $18,069;
Percentage of excess assistance: 4.4%.
1998; Estimated excess rental payments[B]: $857;
Program expenditures: $18,600;
Percentage of excess assistance: 4.6%.
1999; Estimated excess rental payments[B]: $935;
Program expenditures: $18,606;
Percentage of excess assistance: 5.0%.
2000; Estimated excess rental payments[B]: $617[D];
Program expenditures: $18,883; Percentage of excess assistance: 3.3%.
2001; Estimated excess rental payments[B]:
$2,013[E]; Program expenditures: $18.883 [F] ;
Percentage of excess assistance: 10.7%.
Source: HUD.
Note: HUD data reported in annual audited financial statements.
[A] The estimated excess rental assistance is reported in footnotes to
HUD‘s annual consolidated financial statements for fiscal years ending
September 30 of each year; however, the estimates are computed from
data for the preceding calendar year.
[B] These estimates result from unreported tenant income, unless
otherwise noted.
[C] In the audit of HUD‘s fiscal year 1996 consolidated financial
statements, HUD‘s Inspector General concluded that the $538 million
estimate of excess rental assistance was understated because HUD did
not include Supplemental Security Income (SSI) in the computer
matching. In addition, the Inspector General expressed concern about
the completeness of HUD‘s tenant databases. HUD reported to us that
subsequent analysis shows that underreported SSI income had a nominal
effect on the estimate of excess rental assistance.
[D] In the fiscal year 2000 financial statement audit, the Inspector
General also reported that HUD completed a separate quality control
review of rent determination errors made by public housing agencies,
owners, and agents responsible for program administration. This study
estimated about $1.3 billion in overpayment errors or about 6.6 percent
of total rental assistance. This methodology was incorporated in the
analysis done for the fiscal year 2001 financial statement audit report
that resulted in the higher error estimate. The $617 million relates to
unreported tenant income.
[E] The fiscal year 2001 estimated error increased because of a change
in HUD‘s methodology for calculating rental assistance errors to more
accurately capture the full extent of such errors. The new methodology
includes an estimate of the amount of errors in rent determinations
made by project owners/agents, as discussed below, which was not
included in previous years‘ estimates.
[F] HUD reported results using fiscal year 2000 program expenditures.
[End of table]
To capture the full extent of errors made in rental assistance
determinations, HUD has expanded the scope of its error measurement
methodology since January 2001. The expanded methodology covers the
three primary types of rental assistance program errors--(1) incorrect
reporting of income by tenants;[Footnote 23] (2) mistakes by public
housing agencies, owners, and renting agents in calculating income and
rent amounts; and (3) mistakes made by public housing agencies, owners,
and renting agents in completing appropriate paperwork and billing HUD
for rental assistance. The error measurement methodology used for
fiscal year 2000 included the first two of the three primary types of
rental assistance errors, and starting in 2003 HUD intends to measure
and report on all three types of primary errors annually. As table 2
shows, HUD‘s latest estimate is that it paid a total of about $2.013
billion in excess assistance as a result of tenants underreporting or
failing to report their income and because of errors made by program
administrators in calculating rent subsidies.
In 2001, HUD initiated the Rental Housing Integrity Improvement
Project, which is designed to address the causes of the errors and
improper payments and ensure that only eligible people receive
subsidies and that the subsidies are properly calculated. This
initiative is also one of HUD‘s President‘s Management Agenda items.
HUD‘s goal is to reduce the error rate by 50 percent by the end of 2005
by improving the way incomes are verified and reducing errors in
calculating subsidies. Both the Office of Housing and the Office of
Public and Indian Housing have designed program fact sheets for use by
tenants, public housing agencies, owners, landlords/renting agents, and
HUD staff that explain HUD‘s requirements for reporting income and
determining subsidies. HUD is testing a process for automating the rent
calculations, which will help to ensure that no program requirements
are overlooked, and is also considering options to simplify the program
rules. Finally, the Office of Housing and the Office of Public and
Indian Housing have developed quality control programs and redeployed
and trained staff to focus on reducing errors.
HUD‘s efforts to reduce rental assistance overpayments face significant
challenges and the results may not be known for several years. For
example, in order to identify unreported income before rental subsidies
are provided, HUD is trying to gain access to the National Directory of
New Hires,[Footnote 24] maintained by the Department of Health and
Human Services. However, because accessing this data will require
legislation, HUD estimates that it may take two years or more to gain
access to this database. In the interim, the Office of Public and
Indian Housing is pursuing an initiative to use state wage data to
verify income. According to HUD, one agreement was signed with the
state of Texas in October 2002 and cooperative agreements are being
discussed with five other states. Even with access to the National
Directory of New Hires and sharing agreements with states, privacy
concerns may limit the use of such data, particularly by private owners
and lenders who calculate the rental assistance amounts.
HUD‘s Inspector General has reported that some of the information
systems containing tenant data that is necessary to calculate rents and
analyze rental assistance payments contain inaccurate or incomplete
data that may affect the department‘s ability to reduce overpayments.
The current income verification process uses two HUD data sources for
tenant information--the Tenant Rental Assistance Certification System
(TRACS) for Section 8 project-based renters and the Multifamily Tenant
Characteristics System (MTCS) for public housing renters.[Footnote 25]
In a September 2000 report, HUD‘s Inspector General stated that TRACS
contained inaccurate data that decreased the effectiveness of HUD‘s
error calculation efforts.[Footnote 26] In HUD‘s fiscal year 2001
consolidated financial statements audit report, the Inspector General
stated that about 50 percent of the Section 8 contracts in TRACS
contained inaccurate rent rates and that HUD lacked written procedures
that specified when or by whom TRACS should be updated after a rent
rate change.[Footnote 27] The Inspector General recommended that HUD
ensure that planned actions to upgrade TRACS are completed and that
TRACS data are useful and cost-efficient. Otherwise, the department
should discard TRACS and investigate alternative systems. According to
HUD, it has developed a rent module in the Real Estate Management
System, which tracks information on HUD‘s multifamily portfolio, to
maintain rent data for the multifamily housing portfolio effective
January 2003. The Inspector General also reported that, as of December
2001, approximately half of the housing authorities had not reported
household data to MTCS. As of December 2002, 94 percent of public
housing agencies are accessing MTCS, according to HUD.
Assure Housing Quality Standards:
Since January 2001, HUD has continued to respond to our recommendations
on its efforts to manage the quality of assisted and insured rental
housing. HUD has undertaken initiatives to improve its oversight and
ensure that housing providers receiving assistance comply with HUD‘s
quality standards for housing that is decent, safe, sanitary, and in
good repair. Specifically:
* Since January 2001, HUD has taken a number of steps to respond to
recommendations we made in July 2000 concerning the reliability of
inspection scores.[Footnote 28] Since these actions were implemented,
the percentage of inspections that failed to meet REAC‘s standards has
continued to decrease,[Footnote 29] demonstrating REAC‘s progress in
ensuring the accuracy and reliability of its physical inspection
scores. For example, according to data provided by HUD for fiscal year
2001, REAC staff accompanied contract inspectors on 1,616 inspections
and found that less than 8.3 percent of the inspections did not meet
REAC‘s standards, compared with 12 percent when we reported the problem
in July 2000.
* In our June 2001 report on HUD‘s efforts to address physical problems
at multifamily properties in substandard condition, we noted that HUD
could not verify that repairs at substandard properties had been
made.[Footnote 30] In response to our recommendations, HUD has taken
steps to ensure that owners of properties in substandard condition
correct all physical deficiencies at their properties. For example, HUD
hired a contractor to verify that repairs had been made at properties
where the owners had certified that repairs were completed. HUD
officials also noted that effective November 1, 2002, the Departmental
Enforcement Center is required to meet directly with the owners of
properties that receive low inspection scores and pursue specific steps
to ensure the owner improves property conditions. If the owner does not
make the necessary improvements, the center will take immediate
enforcement action, which could include taking control of the property.
* In our March 2002 report, we found that HUD was still testing and
revising its new Public Housing Assessment System (PHAS), but had begun
to use the results to designate certain housing agencies as ’troubled“
and to assign them to recovery centers to receive technical and other
assistance to correct their problems.[Footnote 31] Poor-quality units
are one such problem. We reported that, as of December 2001, HUD had
designated as troubled 21 of about 3,200 agencies that manage public
housing units. Since that time, HUD has designated a total of 84 public
housing agencies as troubled through September 2002.
* In December 1999, HUD implemented a new system assigning risk levels
to public housing agencies. One component is an assessment of housing
quality. HUD field offices use these risk assessments to plan their
monitoring strategies and target their monitoring resources. In March
2002, we recommended that HUD revise its risk assessment system to
automatically classify all troubled housing agencies as high risk,
which was not previously being done. According to HUD, the system has
been modified to make this classification, and the department held
training sessions in June 2002 for field office staff on the
modifications.
* HUD also relies on its Section 8 Management Assessment Program
(SEMAP) to evaluate the performance of public housing agencies that
administer Section 8 tenant-based rental assistance--including an
evaluation of housing quality. Under the President‘s Management Agenda,
one of HUD‘s goals is to use the program to continue improving its
oversight capability and the performance of housing agencies that
administer tenant-based Section 8 programs. According to HUD, SEMAP was
revised in November 2001 to provide field offices with better
assistance in implementing the program.
Although these are positive steps, some have not yet been finalized,
and the impact of recent organizational realignments on HUD‘s progress
in monitoring and ensuring the quality of assisted and insured housing
remains unclear. Further, our work and that of the HUD Inspector
General indicates that ensuring compliance with housing quality
standards remains a serious challenge. Following are examples of
housing quality standards compliance challenges:
* In January 2001 we reported that despite the preponderance of
satisfactory physical inspection scores for multifamily and public
housing properties, inspectors cited a substantial number of properties
for life threatening health and safety problems. Our analysis of HUD
property data indicates that this situation has not significantly
changed in the last 2 years. For fiscal year 2002, about 91 percent of
multifamily and public housing properties received satisfactory
inspection scores, but about half of these properties also had life
threatening health and safety problems at the time of their
inspection.[Footnote 32] According to HUD‘s analysis of the data by
unit level, about 24 percent of multifamily units and 20 percent of
public housing units had life threatening health and safety problems.
* In May 2002, HUD‘s Inspector General reported that public housing
authorities were either not correcting, or not correcting in a timely
manner, life threatening health and safety violations identified during
REAC‘s physical inspections.[Footnote 33] Specifically, only 16 percent
of the deficiencies the Inspector General selected for review had been
corrected within the required time frame. The Inspector General also
noted that the monitoring methods local HUD offices used to ensure that
authorities corrected identified deficiencies were inconsistent and
ineffective. Because the deficiencies were not being corrected, many
public housing residents were forced to live in unsafe or unsanitary
conditions--or both--for extended periods of time. According to HUD,
the Office of Public and Indian Housing has issued guidance for fiscal
year 2003 that requires field staff to conduct spot check reviews of
repairs when they make site visits to public housing agencies.
* In our March 2002 report,[Footnote 34] we found that HUD had
designated 21 of about 3,200 public housing agencies as troubled as of
December 2001. However, our analysis showed that other public housing
agencies could have received the same designation if PHAS, which is
HUD‘s new system for assessing and managing the performance of housing
agencies, had been fully implemented in fiscal year 2001. As many as 90
agencies could have been designated as troubled overall, and another
442 designated as troubled in at least one area, in part because of the
poor quality of their housing units. As of September 2002, although HUD
finalized the system, HUD had still not fully implemented PHAS to use
the results in designating housing agencies as troubled. Until the
system is fully implemented, we cannot assess how effective PHAS will
be in identifying and providing for the correction of long-standing
problems at public housing agencies.
As part of a series of organizational realignments, HUD revised REAC‘s
responsibilities to shift some programs to the Office of Housing and
change the organizational structure so that REAC reports through the
Office of Public and Indian Housing. According to HUD officials, this
realignment and reorganization was completed in October 2002, with some
administrative decisions concerning the personnel actions needed to
effect the realignments yet to be made. As we stated in July 2002, the
creation of REAC was a positive development that yielded real results;
while the Secretary has the prerogative to align the organization as he
sees fit, consistent with his vision and management style, it is
important that progress made to date in improving the condition and
oversight of HUD‘s inventory not be jeopardized.[Footnote 35]
Regardless of how REAC is aligned, HUD must continue to make progress
improving the physical condition of public and assisted multifamily
housing properties. While it is too soon to evaluate the effect of the
organizational changes, ultimately the success or failure will be
viewed in that light.
Effectively Address Human Capital Issues:
Our work, and that of HUD‘s Inspector General, has highlighted the
importance of human capital management in correcting weaknesses in
rental assistance programs. Examples of human capital issues are as
follows:
* Our work and that of the HUD Inspector General identified mismatches
between workload and staffing in HUD‘s public housing program. We
reported in July 2002 that HUD‘s public housing directors believed they
did not have adequate field office staff to provide effective
assistance to the public housing agencies for which they were
responsible.[Footnote 36] At the same time, HUD‘s Inspector General
found that staff at HUD‘s specialized centers, established to deal with
troubled public housing agencies, were often underemployed.
Specifically, the two Troubled Agency Recovery Centers (TARC) had
expected to assist some 575 troubled agencies but because PHAS
implementation was delayed, the expected workload had not materialized.
Meanwhile, HUD‘s field offices were using their limited resources to
assist the agencies that might have been designated as troubled if PHAS
were implemented. According to HUD, it now assigns staff from the TARCs
as needed to the field offices to help with the workload. HUD told us
it was considering making the field offices formally responsible for
troubled agencies and permanently moving all TARC staff to the field
offices, essentially disbanding the recovery centers. To address this
issue, in December 2002, HUD officials stated that a restructuring plan
has been developed to consolidate the Office of Troubled Agency
Recovery into the Field Operations to create a new Office of Field
Operations to improve coordination with field offices and oversight of
public housing agencies.
* In our July 2002 report we noted that because of their heavy
workloads, the staff of some field offices could not implement
processes and procedures for reviewing and monitoring underwriting of
insured multifamily loans. We found that workloads in some offices
often exceeded HUD‘s standard. To address this issue, HUD told us the
department would shift the workload among field offices as needed.
* Our reviews of contracts in HUD‘s Office of Multifamily Housing and
of improper payments associated with some of those contracts indicates
that weaknesses exist in both monitoring and management of contracts,
partly because of staffing issues.[Footnote 37] As discussed in more
detail under the acquisitions management challenge section, we found
that HUD‘s monitoring of its multifamily contractors was not systematic
and was generally remote. Staff reported to us that the workload and
wide dispersion of properties makes it difficult to conduct site visits
as often as is required or as often as staff believe is necessary.
Monitoring is generally conducted based on where staff are located or
after a significant contractor performance problem has been identified.
To help compensate for its inability to do more on-site monitoring, HUD
contracted with a firm to conduct on-site inspections of multifamily
properties it is responsible for managing. However, staff report they
are unable to routinely follow up on identified deficiencies for the
same reasons.
Address Department‘s Crosscutting Management Challenges:
Three crosscutting management challenges affect HUD‘s operations and
contribute to placing the single-family mortgage insurance and rental
housing assistance program areas at high risk. Two of these challenges-
-improving programmatic and financial management information systems
and human capital management--are long-standing issues that both we and
HUD‘s Inspector General have reported for several years. Because of
HUD‘s heavy and ever-increasing reliance on third parties operating
under contractual arrangements and weaknesses in HUD‘s acquisitions
management, we believe acquisitions management is also a management
challenge that the department needs to address.
Improve Programmatic and Financial Management Information Systems:
Both we and HUD‘s Inspector General have reported on weaknesses related
to HUD‘s programmatic and financial management information systems for
many years. For example, in audits of HUD‘s consolidated financial
statements, the Inspector General has identified numerous material
internal control weaknesses. Most of these weaknesses are long-standing
and are the result of inadequate financial systems that do not meet the
department‘s needs. In these audits for the past several years, HUD‘s
Inspector General has stated that the most critical need faced by HUD
in improving its financial management control environment is to
complete the development of adequate systems. The weaknesses in HUD‘s
systems impede its financial management, program effectiveness, and
oversight functions. 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 effort to successfully address its
high-risk program areas.
Since January 2001, HUD has continued its efforts to improve its
programmatic and financial management systems and management of its IT.
According to HUD, its focus has been on stabilizing and enhancing its
existing financial management systems structure, and the department has
deferred action on planning the next generation of core financial
management systems. HUD is planning to complete a feasibility study to
determine the most cost-effective solution to address its long-standing
financial management systems issues, although no date has yet been set
for completion of the study. Specific improvements to HUD‘s financial
and programmatic information systems include the following:
* As of October 2002, FHA deployed a new general ledger module and
improved interfaces with its legacy systems. This deployment makes
progress toward responding to one of FHA‘s material internal control
weaknesses. These improvements are expected to eliminate much of the
manual processing of transactions previously required to generate
consolidated financial statement data for HUD. The new module is
consistent with federal government accounting principles and provides
for automated monthly interfaces with HUD‘s current general ledger.
* FHA is also taking steps to improve funds control, which the
Inspector General also reported as a material weakness, by providing
managers with additional training, updating outdated funds control
policies, and enhancing existing funds control systems. FHA intends to
implement a new subsidiary ledger system that, among other things, is
intended to redesign the funds control process. The first phase of
implementation occurred in October 2002, with full implementation
targeted for fiscal year 2006. The new process is intended to improve
FHA‘s monitoring and control of budgetary resources and reduce manual
analyses and reconciliations.
* HUD established an investment management program to select, control,
and evaluate IT investments. Since fiscal year 2000, HUD has routinely
assessed and scored proposed projects against departmentwide project
selection criteria and used the process to select IT projects. Also,
HUD has been conducting quarterly in-process reviews of all IT projects
to determine whether the projects are achieving the approved
objectives, milestones, and budget targets. HUD has ordered corrections
to projects that fall short of the targets, reallocated project
funding, and stopped projects that were not making sufficient progress
or were not being properly managed based on risk. In January 2002, HUD
completed a pilot postimplementation review of a project and has
scheduled reviews for projects starting in October 2002. According to
the Director of IT Investment Management, HUD intends to accelerate the
number of postimplementation reviews until they are conducted routinely
on all implemented projects.
In addition, HUD has undertaken several efforts--some still ongoing--to
address governmentwide initiatives under the President‘s Management
Agenda to (1) improve financial performance, (2) expand electronic
government (e-government), and (3) improve budget and performance
integration. For example, to improve financial management, the
department is seeking to further reduce the number of noncompliant
systems from 17 to 14 in fiscal year 2003, with full compliance with
federal financial standards by 2006, and is developing a blueprint to
reduce overpayments of rent subsidies. To help further the e-government
initiative, HUD has, among other things, conducted an e-government
assessment to identify current, short-term, and long-term e-government
opportunities. Finally, to address the budget and performance
integration initiative, the department has developed a plan to
integrate budgeting, planning, and evaluation, and is working to
further integrate performance and budget information in the fiscal year
2004 budget. HUD also developed an IT investment management program and
a project management training program that has trained 150 IT project
managers and had planned to make the training program Web-based by
September 2002.
While the continuing efforts are encouraging, we remain concerned that
HUD‘s programmatic and financial management information systems do not
today fully support its programs--including its single-family mortgage
insurance and rental housing assistance programs--and do not ensure
effective financial management of those programs. The following are
examples of these programmatic and financial management concerns:
* As discussed in more detail earlier, to oversee lenders, including
identifying high-risk lenders, and investigate potential fraud cases in
HUD‘s single-family mortgage insurance programs, staff at the
department‘s homeownership centers must collect and manually compile
information from multiple systems and sources. Working manually creates
a greater risk of error and increases the likelihood that problems will
go unnoticed.
* As we reported in July 2002,[Footnote 38] HUD‘s system for tracking
the status of multifamily loan applications does not reliably record
and track several key steps in the accelerated approval process. As a
consequence, HUD field staff must develop and maintain spreadsheets and
other informal systems to monitor the status of HUD‘s actions.
* As we reported in November 2002,[Footnote 39] HUD‘s contracting
information systems do not effectively support acquisitions management.
The department‘s centralized contracting management information system
does not contain reliable data and its financial management information
systems do not readily provide complete and consistent obligation and
expenditure information on contracting activities. To address this
issue, HUD plans to implement data verification procedures and provide
data quality training to staff during fiscal year 2003.
* Finally, in September 2001, we reported that HUD‘s processes for
acquiring software were immature and could be characterized as ad hoc,
sometimes chaotic, and not repeatable across projects.[Footnote 40]
These weaknesses can lead to systems that do not meet the information
needs of management and staff, do not provide support for needed
programs and operations, and cost more and take longer than expected to
complete. HUD agreed to strengthen its software acquisitions process
and, according to the Deputy Secretary, the department has prepared a
strategy and plan to improve its acquisitions of software projects.
Financial Management Deficiencies Remain:
HUD and FHA financial management information systems remain major
concerns. In February 2002, 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. Although HUD obtained an unqualified opinion for its fiscal
year 2000 consolidated financial statements, after the Inspector
General issued a disclaimer on HUD‘s fiscal year 1999 financial
statements, the department relied on extensive ad hoc analyses and
manual reconciliations to develop account balances and the necessary
disclosures.[Footnote 41] HUD also received an unqualified audit
opinion for fiscal year 2001, but the department again relied on
extraordinary manual efforts to prepare its financial statements. This
manual work was necessary because HUD‘s and FHA‘s financial management
systems cannot perform these functions. While an unqualified opinion is
an important milestone in financial management, the ultimate objective
is to have information systems and controls in place to provide
accurate, timely, and useful information to manage agencies on a day-
to-day basis. HUD does not yet have systems that meet these financial
management goals.
The audit report on HUD‘s fiscal year 2001 consolidated financial
statements identified a total of five material internal control
weaknesses. Three weaknesses, most of which are long-standing issues,
related to HUD and two related specifically to FHA.[Footnote 42] The
Inspector General found that HUD needed to (1) complete improvements to
its financial systems, (2) improve its oversight and monitoring of
housing assistance determinations, and (3) ensure that rental
assistance is based on correct tenant income. The audit report also
identified nine additional reportable conditions,[Footnote 43]
including computer security issues.
In the audit report on HUD‘s consolidated financial statements, the
Inspector General also reported that HUD did not substantially comply
with FFMIA for fiscal year 2001. FFMIA requires agencies to put in
place financial management systems that substantially comply with
federal financial management systems‘ requirements and with applicable
accounting standards and that allow transactions to be processed in
accordance with the United States Standard General Ledger. The
Inspector General reported noncompliance in all three areas.
In its fiscal year 2001 Accountability Report, HUD specifically
reported that 17 of its 57 financial management systems did not
materially conform to federal requirements, an increase from the 11
reported in the fiscal year 2000 Accountability Report.[Footnote 44]
HUD noted several financial management system deficiencies, including
several system interfaces that were not automated and that, therefore,
required staff to do manual analyses and reprocessing and make
additional entries to compile complete agencywide financial results.
Further, HUD reported that its systems did not provide adequate funds
control, limited the department‘s ability to ensure the propriety of
Section 8 rental assistance payments, and did not fully support efforts
to identify quickly any funds remaining on expired Section 8 contracts.
Additionally, weaknesses in controls over HUD‘s financial management
systems--both generally and for specific applications--increased the
risk of unauthorized access and manipulation of applications and data
on these systems.
In a separate report, HUD‘s Inspector General reported on deficiencies
in HUD‘s information security. The Inspector General reported that
while HUD has improved some aspects of its Information Systems Security
program, significant weaknesses persist.[Footnote 45] Specifically,
delays in the implementation of corrective actions and tasks designed
to strengthen the program continue to put critical data and resources
at risk. As a result, progress toward strengthening the program has
been hampered and the program remains immature and not fully effective
in ensuring the integrity, confidentiality, and authenticity of
information and information systems supporting departmental operations
and assets. In response to this report, the Deputy Secretary said HUD
currently has four contract initiatives under way that will have a
direct bearing on the Inspector General‘s audit findings. These
contract initiatives cover incident response service; policy
development; training for all HUD staff and collocated contractor
staff; and security plans, reviews and threat assessments for 17
mission critical systems.
In the audit report on FHA‘s fiscal year 2001 financial statements, the
independent auditors reported two material weaknesses that specifically
affect FHA‘s financial management. The auditors concluded that FHA
needs to (1) enhance its information technology systems to more
effectively support FHA‘s business processes and (2) improve its
controls over budget execution and funds control. The independent
auditors reported that FHA‘s inability to significantly update its
system environment adversely affects internal controls related to
accounting and reporting financial activities. The auditors also said
that FHA does not have financial systems that are capable of fully
monitoring and controlling budgetary resources. FHA reported that
weaknesses in its budget execution and funds control areas contributed
to an Anti-Deficiency Act violation in fiscal year 2000 in the amount
of $7.3 million, which required a supplemental appropriation from
Congress.[Footnote 46] The weaknesses in its financial management
systems also increased the risk of noncompliance with applicable
federal accounting standards.[Footnote 47] According to HUD, the
implementation of the new FHA General Ledger in October 2002 put in
place the core system for beginning to address funds control issues. In
addition, as part of a departmentwide effort, FHA is in the process of
updating its funds control plans.
Address Critical Human Capital Issues:
Like other federal agencies, HUD has historically not strategically
managed its human capital. In our January 2001 report, we noted that
the reorganizations that took place as part of HUD‘s 2020 Management
Reform Plan had resulted in imbalances in workload at several specialty
centers and in some of the field offices. Managers we surveyed reported
that training and staff skills had generally improved, but also thought
that training should be increased. HUD‘s human capital challenges can
be seen as part of a broader pattern of human capital shortcomings that
have eroded mission capabilities across the federal government. (See
our high-risk series update for a discussion of human capital as a
governmentwide high-risk area.[Footnote 48]):
HUD‘s most significant workforce planning to date has been its Resource
Estimation and Allocation Process (REAP) study, which was completed in
December 2001. On an office-by-office basis, the REAP study looked at
the number of staff on board and assigned a staff ceiling--the number
of staff needed for that office based on the work the office was
currently performing--and calculated the resources required to do that
work. In support and validation of REAP, HUD has implemented a workload
measurement system that captures the type of work HUD employees and
contractors perform and the time required to do it. While the results
of the REAP study suggested an increase in the number of full-time
equivalent positions--from 9,531 to 10,600--HUD did not request the
higher number of staff in its fiscal year 2003 budget submission.
According to a HUD official, the workload measurement system was not
fully implemented when the budget went to the Congress and HUD was
still redeploying existing staff. However, HUD told us that the
redeployment has been completed and that the Assistant Secretary for
Administration and Director of Personnel are now focused on hiring and
orientation strategies to support an increase in staffing levels.
HUD has also analyzed data on staff retirement eligibility by office,
position, and grade level. Among its findings is that, by August 2003,
half of its workforce in General Schedule Grades 9-15 will be eligible
to retire. According to HUD officials, in light of the pending
retirements and because the department has done little outside hiring
in more than 10 years, HUD needs to undertake a large-scale recruiting
and hiring effort. HUD is considering the potential retirements in its
hiring strategies by including an emphasis on recruiting midcareer
employees. HUD expects to complete a 5-year strategic plan in early
2003.
Since 2001, HUD has realigned some of its organizational activities and
centers, reassigning staff to address staffing needs in program areas.
For example, the community builder position, which was created to help
local communities more effectively access HUD programs, was abolished
and these individuals were transferred to other positions in program
offices where HUD identified a more critical need. Of the approximately
300 positions redeployed, HUD reports that the staff were reassigned
from the Office of Field Policy Management to other programs in field
offices as shown in Table 3.
Table 3: HUD Staff Redeployed from Field Policy Management to Program
Offices:
Number of staff: 97; Program office: Office of Housing (74 to
multifamily, 23 to single family).
Number of staff: 92; Program office: Office of Public and Indian
Housing.
Number of staff: 73; Program office: Office of Community Planning and
Development.
Number of staff: 34; Program office: Office of Fair Housing and Equal
Opportunity.
Source: HUD.
[End of table]
HUD has also undertaken additional human capital planning activities to
respond to the President‘s Management Agenda. In addition to
redeploying staff to mission-critical positions, HUD has taken steps
to:
* reduce management layers and the ratio of supervisors to staff,
* develop an intern program (The department told us it met the goal of
hiring and training at least 200 interns in the summer of 2002.),
* identify core competencies for major offices, and:
* develop training opportunities and career paths to support staff
development.
HUD has also convened a Human Capital Steering Committee to organize
these initiatives.
While these efforts are important first steps toward strategic human
capital management, additional workforce planning steps are necessary.
Missing from HUD‘s workforce planning are elements that we believe are
essential, including analyses of what the work staff should be doing
now and in the future and the knowledge, skills, and abilities needed
to do this work; the appropriate staff deployment across the
organization; and strategies for identifying and filling workforce
gaps. A comprehensive workforce plan would allow HUD to better manage
its current staff and plan for the department‘s future needs. In July
2002, we recommended that HUD develop a comprehensive strategic
workforce plan that is aligned with the department‘s strategic plan and
contains the elements outlined above. Lacking these elements, HUD is
not as prepared as it could be to address its human capital challenges
and to recruit and hire the staff needed to pursue its mission. HUD
officials report that they are in the process of developing a statement
of work to hire a contractor to complete a comprehensive workforce
planning study.
In December 2002,[Footnote 49] HUD‘s Inspector General also reported
that although the department had made significant progress in
implementing its resource estimation process, it lacked a comprehensive
strategic plan that defines how the data from the studies will be used
to justify and allocate its human capital resources among its operating
components. The Inspector General observed that this may limit HUD‘s
effectiveness in helping manage its human capital resources.
HUD‘s lack of a comprehensive workforce plan has affected the agency‘s
performance in several program areas, including the following:
* In the single-family homeownership centers, staffing imbalances have
hampered center operations, and deployment of staff is not consistent
with the centers‘ workload. As a result, all four centers have had
difficulty supervising and making effective use of the staff in field
offices. Further, HUD has transferred two key functions--overseeing
appraisers and assessing lenders--from the REAC to the Office of Single
Family Housing. While the Office of Single Family Housing has received
authorization for the positions it needs to carry out these functions,
it has not filled all of the positions. According to officials from the
office, the shortages have increased the existing staff‘s workloads.
* We also reported that training at the homeownership centers was
inadequate, as HUD had not developed a standard training curriculum for
center staff. We recommended that HUD assess the centers‘ workforce,
develop a plan for locating center staff where they are needed, and
deploy the staff effectively; develop a training curriculum for center
staff; and develop a strategic human capital management plan for the
homeownership centers that considers all areas of human capital
management. HUD has made some progress in these areas, but the
recommendations remain open.
* In July 2002,[Footnote 50] we reported that some managers and staff
in the Office of Public and Indian Housing found that the lack of
workforce planning made it difficult to accomplish several mission-
related activities and provide service to customers. The workforce
planning issue of greatest concern to office managers and staff was
insufficient staff. Directors of several public housing and Native
American program field offices--which were staffed at less than 90
percent of the recommended staffing level at the time--said that they
lacked the staff to provide the level of oversight and technical
assistance that the housing agencies need. Although the field office
directors we interviewed said that they were meeting the goal of using
risk assessment techniques to focus oversight efforts, they lacked a
standard method of assigning levels of oversight based on risk.
According to field office directors, the staffing shortages were
exacerbated by skills gaps and uncertainties about what work should be
done and the best mix of staff knowledge, skills, and abilities to do
it. According to HUD, the Office of Public and Indian Housing will
continue to review workload and consult field staff on ways to improve
program implementation and monitoring efforts. Additionally, HUD
officials told us they are developing training to address a perceived
skills gap, but noted that financial support for travel funds and
supplies is necessary to fully implement the training program.
* HUD‘s Inspector General also found that some areas were plagued by
human capital difficulties. An August 2001 review of HUD‘s Troubled
Agency Recovery Center in Memphis revealed that the center was unable
to fully and effectively utilize its staff.[Footnote 51] In addition,
in April 2002, the Inspector General reported that staff resources at
HUD‘s Seattle Technical Assessment Center were underutilized, that
opportunities for employee misconduct existed, and similar problems
could exist at the Chicago Center.[Footnote 52] HUD agreed with these
findings and has taken steps to address the Inspector General‘s
recommendations, including increasing the number of housing agencies
assigned to the Memphis Center and planning to reassign much of the
Seattle and Chicago staff to other positions in the Office of Public
and Indian Housing or in REAC where they will be more effectively
utilized.
In November 2002,[Footnote 53] we reported that HUD does not
strategically manage its acquisitions workforce to ensure that staff
responsible for managing and oversight of its contracts have the
appropriate workload, skills, and training that would enable them to
effectively perform their jobs, as discussed in more detail in the
following section.
Actions Needed to Improve Acquisitions Management:
As HUD downsized its staff in the 1990s--from about 13,500 people to
around 9,000 today--the scope of its mission and the needs of the
people it serves did not decrease.[Footnote 54] As a result, HUD came
to rely more and more on private contractors to help carry out its
mission. HUD‘s contracting commitments between fiscal years 1997 and
2000 increased by about 62 percent--from about $786 million to almost
$1.3 billion (in 2001 constant dollars)--and HUD expects this trend to
continue. HUD‘s contractors are an integral part of program delivery
and other vital functions, and HUD has estimated that the size of its
contractor workforce may nearly equal its own. Contractors are
responsible for key portions of HUD‘s single-family insurance program
and its rental housing assistance programs--areas that we consider high
risk. For example, contractors are responsible for managing and
disposing of HUD‘s inventory of single-family and multifamily
properties--properties that have a combined value of about $3 billion
(as of September 30, 2001).
In October 2001,[Footnote 55] we concluded that acquisitions management
was one of the significant challenges facing HUD in its attempts to
sustain the progress of its management reform and move toward its goal
of becoming a high-performing organization. Most recently, in November
of 2002, we concluded that weaknesses in acquisitions management
limited HUD‘s ability to prevent, identify, and hold its contractors
accountable.[Footnote 56]
In response to criticisms and as part of its recent management reform
initiatives, HUD has taken actions to improve its acquisitions
management. These actions include the following:
* hiring a Chief Procurement Officer,
* creating full-time technical positions at the program level with
responsibility for monitoring contractors‘ performance,
* instituting a certification training program and supplementary on-
line training on the federal contracting process as implemented at HUD,
* establishing and upgrading an agencywide contracting management
information system to help consolidate contracting data and integrate
it with HUD‘s financial systems, and:
* creating a Contract Management Review Board to improve procurement
planning and contract administration.
While HUD has initiated these actions, our work shows that the agency
still faces significant challenges in acquisitions management. Taken
together, these weaknesses limit HUD‘s ability to readily prevent,
identify, and address contractor performance problems. As a result, HUD
cannot yet ensure that it fulfills its mission and maintains the
financial integrity of its programs.
The department and, in particular, its multifamily housing program,
does not employ certain processes and practices that could facilitate
effective monitoring and ensure contractors are held
accountable.[Footnote 57]HUD‘s monitoring of its contractors is not
systematic and is largely remote. Specifically, HUD‘s monitoring does
not consistently include the use of contract monitoring plans, risk-
based strategies, or the tracking of contractor performance--which
would be helpful in the administration of such plans and
strategies.[Footnote 58] According to a GAO survey, only 23 percent of
HUD‘s government technical representatives who are responsible for
contract oversight use a contract administration plan, which the Office
of Federal Procurement Policy describes as essential to good contract
administration. Instead, HUD‘s monitoring techniques consist mainly of
reviews of progress reports and invoices, phone calls, and E-mails.
When on-site visits are conducted, they do not occur as often as HUD
guidance specifies, and HUD staff reported their workload and scarce
travel resources limit their ability to follow up on identified
problems.[Footnote 59] Without a systematic approach to oversight and
adequate on-site monitoring, the department‘s ability to identify and
correct contractor performance problems and hold contractors
accountable is reduced. The resulting vulnerability limits HUD‘s
ability to assure that it is receiving the services for which it pays.
Our review of HUD‘s files and disbursements indicates that its
oversight processes have not identified instances in which contractors
were not performing as expected. For example, HUD‘s files indicated
that problems often surfaced either incidentally or were discovered by
people outside HUD. Problems are not identified through routine
monitoring performed by the program staff responsible for a particular
function. For example, a contracting officer identified situations
where a contractor was purchasing items for properties after HUD had
already sold them. Also, our review of disbursements by one of HUD‘s
property disposition contractors identified cases in which the
contractor bypassed HUD controls by (1) alleging that construction
renovations were emergencies, thus not requiring multiple bids, and (2)
splitting renovations into multiple projects to stay below the $50,000
threshold that requires HUD approval.[Footnote 60] In one of the cases,
HUD paid $227,500 to have 15,000 square feet of concrete replaced;
however, we determined that only about one-third of the work HUD paid
for was actually performed.[Footnote 61] HUD‘s Inspector General and
GAO‘s Office of Special Investigations are investigating these cases.
In addition, HUD has not taken steps to ensure that individuals
responsible for managing and monitoring contracts are given appropriate
workloads or that staff have acquired the skills and training needed to
effectively perform their jobs. While a recent resource allocation
study characterized HUD‘s Office of Chief Procurement Officer as an
organization ’in crisis,“ HUD has not yet addressed the workload
disparities raised in that study. Further, while HUD has undertaken a
workforce planning effort for the entire department, HUD has not
assessed the skills and capabilities of its acquisitions
workforce.[Footnote 62] In addition, according to HUD‘s records, over
half of the staff that is directly responsible for monitoring
contractor performance has not received the required training. Managers
in HUD‘s procurement office were not aware that staff were serving in
that capacity without the required training.
Finally, HUD‘s programmatic and financial management information
systems do not readily provide accurate and consistent data to support
its acquisitions workforce in their efforts to manage and monitor
contracts. For example, the department‘s centralized contracting
management information system does not contain reliable data on the
number of active contracts, the expected cost of the contracts, or the
types of goods and services acquired. In addition, HUD‘s financial
management information systems do not readily provide complete and
consistent obligation and expenditure information for HUD‘s overall
contracting activities or for individual contracts. To compensate for a
lack of information, HUD staff overseeing contracts have developed
informal or ’cuff“ systems--personal spreadsheets to fulfill their job
responsibilities. However, these informal systems are not subject to
HUD‘s policies, procedures, or internal controls to ensure that the
information maintained in them--and used by HUD‘s acquisitions
workforce--is accurate. In addition, the programmatic and financial
management information systems do not provide HUD managers with
accurate and timely information needed to oversee the department‘s
contracting activities, make informed decisions about the use of HUD‘s
resources, and ensure accountability in the department‘s programs.
While some of these deficiencies are long-standing and will likely
require years to resolve, HUD can take immediate steps to address
certain acquisitions management deficiencies. For example, in our
November 2002 report on HUD‘s acquisitions management, we recommended
that HUD implement a systematic approach to monitoring contracts,
address planning and training requirements for its acquisitions
workforce, and take steps to improve the accuracy and usefulness of its
centralized contracting information system. HUD generally agreed with
these recommendations and has initiated steps to address these concerns
including emphasizing the importance of monitoring plans in training,
increasing oversight of procurements done by multifamily property
management contractors, and increasing the staff resources devoted to
contract award and administration.
[End of section]
GAO Contacts:
Subject(s) covered in this report: Reduce risk of losses in HUD‘s
single-family mortgage insurance program; ; Increase efficiency and
effectiveness of rental housing assistance programs; ; Address critical
human capital issues; ; Actions needed to improve acquisition
management; Contact person: David G. Wood, Director; Financial Markets
and Community Investment; (202) 512-8678; wooddg@gao.gov.
Subject(s) covered in this report: Improve programmatic and financial
management information systems; Contact person: Joel C. Willemssen,
Managing Director; Information Technology; (202) 512-6408;
willemssenj@gao.gov; ; Linda M. Calbom, Director; Financial Management
and Assurance; (202) 512-9508; calboml@gao.gov.
[End of section]
Related GAO Products:
HUD Management: HUD‘s High-Risk Program Areas and Management
Challenges. GAO-02-869T. Washington, D.C.: July 24, 2002.
Federal Housing Assistance: Comparing the Characteristics and Costs of
Housing Programs. GAO-02-76. Washington, D.C.: January 31, 2002.
HUD Management: Progress Made on Management Reforms, but Challenges
Remain. GAO-02-45. Washington, D.C.: October 31, 2001.
Federal Housing Programs: What They Cost and What They Provide. GAO-01-
901R. Washington, D.C.: July 18, 2001.
Department of Housing and Urban Development: Status of Achieving Key
Outcomes and Addressing Major Management Challenges. GAO-01-833.
Washington, D.C.: July 6, 2001.
High-Risk Series: An Update. GAO-01-263. Washington D.C.: January 2001.
Major Management Challenges and Program Risks: Department of Housing
and Urban Development. GAO-01-248. Washington, D.C.: January 2001.
Reduce Risk of Losses in HUD‘s Single-Family Mortgage Insurance
Program:
Mortgage Financing: Actuarial Soundness of the Federal Housing
Administration‘s Mutual Mortgage Insurance Fund. GAO-02-671T.
Washington, D.C.: April 24, 2002.
Single-Family Housing: Opportunities to Improve Federal Foreclosure and
Property Sale Processes. GAO-02-305. Washington, D.C.: April 17, 2002.
Single-Family Housing: Current Information Systems Do Not Fully Support
the Business Processes at HUD‘s Homeownership Centers. GAO-02-44.
Washington, D.C.: October 24, 2001.
Homeownership: Problems Persist With HUD‘s 203(k) Home Rehabilitation
Mortgage Insurance Program. GAO-01-1124T. Washington, D.C.: September
10, 2001.
Single-Family Housing: Better Strategic Human Capital Management Needed
at HUD‘s Homeownership Centers. GAO-01-590. Washington, D.C.: July 26,
2001.
Mortgage Financing: Actuarial Soundness of the Federal Housing
Administration‘s Mutual Mortgage Insurance Fund. GAO-01-527T.
Washington, D.C.: March 20, 2001.
Mortgage Financing: FHA‘s Fund Has Grown, but Options for Drawing on
the Fund Have Uncertain Outcomes. GAO-01-460. Washington,
D.C.: February 28, 2001.
Increase Efficiency and Effectiveness of Rental Housing Assistance
Programs:
Multifamily Housing: Improvements Needed in HUD‘s Oversight of Lenders
That Underwrite FHA-Insured Loans. GAO-02-680. Washington, D.C.: July
19, 2002.
Public Housing: HUD and Public Housing Agencies‘ Experiences with
Fiscal Year 2000 Plan Requirements. GAO-02-572. Washington, D.C.: May
31, 2002.
Public Housing: New Assessment System Holds Potential for Evaluating
Performance. GAO-02-282. Washington, D.C.: March 15, 2002.
Homelessness: Improving Program Coordination and Client Access to
Programs. GAO-02-485T. Washington, D.C.: March 6, 2002.
Multifamily Housing Finance: Funding FHA‘s Subsidized Credit Programs.
GAO-02-323R. Washington, D.C.: February 1, 2002.
Multifamily Housing: Issues Related to Mark-to-Market Program
Reauthorization. GAO-01-800. Washington, D.C.: July 11, 2001.
HUD Multifamily Housing: Improved Follow-up Needed to Ensure That
Physical Problems Are Corrected. GAO-01-668. Washington, D.C.: June
21, 2001.
Multifamily Housing: Issues Related to Mark-to-Market Program
Reauthorization. GAO-01-871T. Washington, D.C.: June 19, 2001.
Improve Programmatic and Financial Management Information Systems,
Human Capital, and Acquisition Management:
HUD Management: Actions Needed to Improve Acquisition Management. GAO-
03-157. Washington, D.C.: November 15, 2002.
Financial Management: Strategies to Address Improper Payments at HUD,
Education, and Other Federal Agencies. GAO-03-167T. Washington, D.C.:
October 3, 2002.
HUD Human Capital Management: Comprehensive Strategic Workforce
Planning Needed. GAO-02-839. Washington, D.C.: July 24, 2002.
HUD Information Systems: Immature Software Acquisition Capability
Increases Project Risks. GAO-01-962. Washington, D.C.: September 14,
2001.
[End of section]
Performance and Accountability and High-Risk Series:
Major Management Challenges and Program Risks: A Governmentwide
Perspective. GAO-03-95.
Major Management Challenges and Program Risks: Department of
Agriculture. GAO-03-96.
Major Management Challenges and Program Risks: Department of Commerce.
GAO-03-97.
Major Management Challenges and Program Risks: Department of Defense.
GAO-03-98.
Major Management Challenges and Program Risks: Department of Education.
GAO-03-99.
Major Management Challenges and Program Risks: Department of Energy.
GAO-03-100.
Major Management Challenges and Program Risks: Department of Health and
Human Services. GAO-03-101.
Major Management Challenges and Program Risks: Department of Homeland
Security. GAO-03-102.
Major Management Challenges and Program Risks: Department of Housing
and Urban Development. GAO-03-103.
Major Management Challenges and Program Risks: Department of the
Interior. GAO-03-104.
Major Management Challenges and Program Risks: Department of Justice.
GAO-03-105.
Major Management Challenges and Program Risks: Department of Labor.
GAO-03-106.
Major Management Challenges and Program Risks: Department of State.
GAO-03-107.
Major Management Challenges and Program Risks: Department of
Transportation. GAO-03-108.
Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.
Major Management Challenges and Program Risks: Department of Veterans
Affairs. GAO-03-110.
Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.
Major Management Challenges and Program Risks: Environmental Protection
Agency. GAO-03-112.
Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.
Major Management Challenges and Program Risks: National Aeronautics and
Space Administration. GAO-03-114.
Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.
Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.
Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.
Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.
High-Risk Series: An Update. GAO-03-119.
High-Risk Series: Strategic Human Capital Management. GAO-03-120.
High-Risk Series: Protecting Information Systems Supporting the Federal
Government and the Nation‘s Critical Infrastructures. GAO-03-121.
High-Risk Series: Federal Real Property. GAO-03-122.
FOOTNOTES
[1] U.S. General Accounting Office, Housing and Urban Development:
Potential Implications of Legislation Proposing to Dismantle HUD, GAO/
RCED-97-36 (Washington, D.C.: Feb. 21, 1997).
[2] The last initiative, reducing meaningless compliance burdens,
concerns the consolidated plan process in HUD‘s Office of Community
Planning and Development. This report does not discuss this initiative
because it does not relate to HUD‘s program areas that we consider at
high risk or to management challenges we have identified.
[3] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Housing and Urban Development, GAO-01-248
(Washington, D.C.: January 2001).
[4] A legacy system generally refers to an old or outdated computer
system that remains in use even after more modern technology has been
installed.
[5] This is the value of single-family insurance-in-force as of
September 30, 2001. FHA endorsed 1,067,000 single-family mortgage loans
through about 7,500 approved lenders in fiscal year 2001, including
loans for refinancing.
[6] GAO-01-248.
[7] 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).
[8] Credit Watch is a program that enables FHA to analyze trends in
claim and default data by lender and impose sanctions on problem
lenders, including terminating their loan origination authority.
[9] 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).
[10] Section 204 of the National Housing Act, as amended by section 601
of the HUD Appropriations Act of Fiscal Year 1999.
[11] U.S. General Accounting Office, Homeownership: Problems Persist
with HUD‘s 203(k) Home Rehabilitation Loan Program, GAO/RCED-99-124
(Washington, D.C.: June 14, 1999).
[12] U.S. Department of Housing and Urban Development, Office of
Inspector General, Semi-annual Report to the Congress for the period
ending September 30, 2002 (Washington, D.C.).
[13] U.S. Department of Housing and Urban Development, Office of
Inspector General, Audit Memorandum: Philadelphia Homeownership Center
Single-Family Disposition Activities, 2001-PH-0803 (Washington, D.C.:
June 2001). Responsibility for FHA‘s single-family insurance loan
processing and property management is assigned to four homeownership
centers located in Atlanta, Denver, Philadelphia, and Santa Ana
(California).
[14] U.S. General Accounting Office, Homeownership: Problems Persist
with HUD‘s 203(k) Home Rehabilitation Loan Program, GAO-01-1124T
(Washington, D.C.: Sept. 10, 2001).
[15] U.S. General Accounting Office, Single-Family Housing:
Opportunities to Improve Federal Foreclosure and Property Sale
Processes, GAO-02-305 (Washington, D.C.: Apr. 17, 2002).
[16] U.S. General Accounting Office, Single-Family Housing: Better
Strategic Human Capital Management Needed at HUD‘s Homeownership
Centers, GAO-01-590 (Washington, D.C.: July 26, 2001).
[17] U.S. General Accounting Office, Single-Family Housing: Current
Information Systems Do Not Support the Business Processes at HUD‘s
Homeownership Centers, GAO-02-44 (Washington, D.C.: Oct. 24, 2001).
[18] U.S. Department of Housing and Urban Development, Office of
Inspector General, Review of Officer/Teacher Next Door Program, 2002-
DE-0802 (Denver, CO: Mar. 12, 2002).
[19] To complete the FHA audit, HUD‘s Inspector General contracted with
the independent certified public accounting firm of KPMG. Department of
Housing and Urban Development, Office of Inspector General, Federal
Housing Administration Audit of Financial Statements Fiscal Years 2001
and 2000, 2002-FO-0002 (Washington, D.C.: Feb. 22, 2002).
[20] A material weakness is a condition in which the design of one or
more of the internal control components does not reduce, to a
relatively low level, the risk that errors or irregularities, in
amounts that would be material to the financial statements, may occur
and not be detected promptly by employees in the normal course of
performing their duties.
[21] Housing agencies may administer public housing or Section 8
tenant-based assistance (housing vouchers) or both.
[22] The assistance provided under these contracts is called Section 8
project-based assistance.
[23] Until 2000, HUD‘s methodology focused on incorrect reporting of
income by tenants by matching the income amount tenants reported to HUD
with data obtained from the Internal Revenue Service and the Social
Security Administration.
[24] The directory includes centralized sources of state wage,
unemployment insurance, and new hires data for all 50 states.
[25] HUD reports that MTCS is now known as PIC-50058.
[26] U.S. Department of Housing and Urban Development, Office of
Inspector General, Housing Subsidy Payments: Office of Housing, 00-KC-
103-0002 (Kansas City, MO: Sept. 29, 2000).
[27] U.S. Department of Housing and Urban Development, Office of
Inspector General, Audit of U.S. Department of Housing and Urban
Development Financial Statements for Fiscal Years 2001 and 2000, 2002-
FO-0003 (Washington, D.C.: Feb. 27, 2002).
[28] U.S. General Accounting Office, HUD Housing Portfolios: HUD has
Strengthened Physical Inspections but Needs to Resolve Concerns About
their Reliability, GAO/RCED-00-168 (Washington, D.C.: July 25, 2000).
[29] HUD‘s REAC is responsible for assessing whether properties in the
agency‘s public and assisted multifamily housing programs comply with
standards for safety, cleanliness, and good repair. Contractors
certified by REAC inspect projects for compliance with HUD standards.
[30] U.S. General Accounting Office, HUD Multifamily Housing: Improved
Followup Needed to Ensure that Physical Problems are Corrected, GAO-01-
668 (Washington, D.C.: June 21, 2001).
[31] U.S. General Accounting Office, Public Housing: New Assessment
System Holds Potential for Evaluating Performance, GAO-02-282
(Washington, D.C.: Mar. 15, 2002).
[32] Inspection data for fiscal year 2002 is for the period through
September 2002 for public housing and through June 2002 for multifamily
housing.
[33] U.S. Department of Housing and Urban Development, Office of
Inspector General, Multi-location Review of HUD‘s Utilization of the
Public Housing Assessment System, 2002-PH-0001 (Washington, D.C.: May
2002).
[34] GAO-02-282.
[35] U.S. General Accounting Office, HUD Management: HUD‘s High-Risk
Program Areas and Management Challenges, GAO-02-869T (Washington D.C.:
July 24, 2002).
[36] U.S. General Accounting Office, HUD Human Capital Management:
Comprehensive Strategic Workforce Planning Needed, GAO-02-839
(Washington D.C.: July 24, 2002).
[37] U.S. General Accounting Office, HUD Management: Actions Needed to
Improve Acquisition Management, GAO-03-157 (Washington, D.C.: Nov. 15,
2002); and U.S. General Accounting Office, Financial Management:
Strategies to Address Improper Payments at HUD, Education, and Other
Federal Agencies, GAO-03-167T (Washington, D.C.: Oct. 3, 2002).
[38] U.S. General Accounting Office, Multifamily Housing: Improvements
Needed in HUD‘s Oversight of Lenders That Underwrite FHA-Insured Loans,
GAO-02-680 (Washington, D.C.: July 19, 2002).
[39] GAO-03-157.
[40] U.S. General Accounting Office, HUD Information Systems: Immature
Software Acquisition Capability Increases Project Risk, GAO-01-962
(Washington, D.C.: Sept. 14, 2001).
[41] Due to problems experienced in converting to a new system, the
Inspector General was unable to issue an opinion on HUD‘s fiscal year
1999 consolidated financial statements. HUD could not prepare auditable
financial statements and related disclosures in time to allow the
Inspector General to complete the audit within statutory time frames.
[42] The two FHA material weaknesses, which have contributed to our
high-risk designation for HUD‘s single-family mortgage insurance
programs, are discussed in the single-family mortgage insurance section
of this report. Two of HUD‘s material weaknesses specifically relate to
rental assistance determination and payment processes, which have
contributed to our high-risk designation for HUD‘s rental housing
assistance programs, as discussed in the rental housing assistance
section of this report.
[43] Reportable conditions are matters coming to the attention of the
auditors that, in their judgment, should be communicated to management
because they represent significant deficiencies in the design or
operation of internal control that could adversely affect the
organization‘s ability to meet the objectives of reliable financial
reporting and compliance with applicable laws and regulations.
[44] HUD stated that the number of noncompliant FHA systems increased
largely as a result of applying revised criteria from the Office of
Management and Budget.
[45] Office of Inspector General, Department of Housing and Urban
Development, Annual Evaluation of HUD‘s Information Security Program,
2003-DP-0801 (Washington, D.C.: Oct. 30, 2002).
[46] The Antideficiency Act (31 U.S.C. 1341) provides that unless
otherwise authorized by law, no officer or employee of the United
States may obligate or expend funds in excess of amounts appropriated
by law or before such funds are appropriated.
[47] Statement of Federal Financial Accounting Standards Number 7,
’Accounting for Revenue and Other Financing Sources and Concepts for
Reconciling Budgetary and Financial Accounting.“
[48] U.S. General Accounting Office, High Risk Series: An Update, GAO-
03-119 (Washington, D.C.: January 2003).
[49] U.S. Department of Housing and Urban Development, Office of
Inspector General, Assessment of HUD‘s Progress in Implementing the
Resource Estimation and Allocation Process (REAP) and Total Estimation
and Allocation Mechanism(TEAM) Components of its Human Resource
Management System, 2003-PH-0801 (Philadelphia, PA: Dec. 3, 2002)
[50] GAO-02-839.
[51] U.S. Department of Housing and Urban Development, Office of
Inspector General, Troubled Agency Recovery Center, Memphis, Tennessee,
2001-AT-0002 (Atlanta, GA: Aug. 17, 2001).
[52] U.S. Department of Housing and Urban Development, Office of
Inspector General, Audit Memorandum on the Staffing Resources of the
Real Estate Assessment Center‘s Tenant Assessment Subsystem, Seattle
Technical Assistance Center, 2002-SE-0801 (Seattle, WA: Apr. 23, 2002).
[53] GAO-03-157.
[54] These staff levels include only staff assigned to HUD‘s program
offices and do not include full-time equivalents assigned to HUD‘s
Office of Inspector General, working capital fund, and the Office of
Federal Housing Enterprise Oversight.
[55] U.S. General Accounting Office, HUD Management: Progress Made on
Management Reforms, but Challenges Remain. GAO-02-45 (Washington, D.C.:
Oct. 31, 2001).
[56] GAO-03-157.
[57] We have defined monitoring as an internal control function that is
performed continually and is ingrained in the agency‘s operations. It
includes regular management and supervisory activities, comparisons,
reconciliations, and other actions people take in performing their
duties. U.S. General Accounting Office, Standards for Internal Control
in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.:
November 1999).
[58] For example, the Office of Federal Procurement Policy‘s Guide to
Best Practices for Contract Administration recommends the use of a
contract administration plan for good contract administration.
According to the Guide, this plan should specify the performance
outputs and describe the methodology used to conduct inspections of
those outputs. Further, HUD‘s Acquisition Regulation and Procurement
Policies and Procedures Handbook specify various monitoring tools that
HUD staff may use to monitor contractor performance, such as a quality
assurance plan, a contractor‘s work plan and schedule of performance,
or progress reports.
[59] A HUD handbook indicates that quarterly inspections are to occur,
but the specific sections in the handbook that are to discuss those
inspections have not yet been developed.
[60] U.S. General Accounting Office, Financial Management: Strategies
to Address Improper Payments at HUD, Education and Other Federal
Agencies, GAO-03-167T (Washington, D.C.: Oct. 3, 2002).
[61] GAO-03-157.
[62] In July 2002,we reported that HUD has undertaken some workforce
planning and has determined how many staff it needs to meet its current
workload, but it does not have a comprehensive strategic workforce plan
to guide its recruiting, hiring, and other key human capital efforts.
GAO-02-839.
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