Department of Housing and Urban Development
Status of Efforts to Implement an Integrated Financial Management System Gao ID: GAO-03-447R April 9, 2003Weaknesses in the Department of Housing and Urban Development's (HUD) financial management systems have been a long-standing challenge for the department and have contributed to our designating two of its major programs areas as high-risk and the financial management information systems in particular as a major management challenge. While some progress has been made, both GAO and the HUD Office of the Inspector General (IG) have reported extensively on weaknesses related to HUD's financial management systems. In audits of HUD's consolidated financial statements, the IG has consistently identified several material internal control weaknesses resulting from inadequate financial management systems. In recent audit reports, the HUD OIG also noted that the completion of the development of adequate financial management systems is the most critical need faced by HUD in improving its financial management control environment. Responsive financial management systems are particularly critical to HUD's ability to meet its mission, deliver key services, and establish sufficient management control over its operations. In light of these issues, Congress asked that we (1) summarize HUD's past efforts to implement an integrated financial management system, (2) identify the challenges HUD faces with its current financial management systems, and (3) determine the status of HUD's current efforts to identify and address its financial management systems needs.
HUD's past efforts have not resulted in the implementation of a modern integrated financial management system to carry out its core accounting functions and meet other needs. HUD's current Central Accounting and Program System (HUDCAPS), as implemented in fiscal year 1999, is the product of its Financial System Integration (FSI) effort, which began in 1991. While this effort did result in the development and deployment of various modules and systems to support several key programs and processes, it did not result in an integrated financial management system, which was a stated goal of the project. In 1998 we reported1 that even though HUD spent hundreds of millions of dollars, the FSI effort was not fully successful because of the lack of (1) adequate project management, (2) finalized project plans that provided an integration roadmap, and (3) adequate cost-benefit analyses that properly estimated the costs to achieve the objectives of the plan and how long it would take to achieve these objectives. HUD uses HUDCAPS as its core financial management and general ledger system. However, this system is not efficient, has become outdated, and has high annual maintenance costs. HUDCAPS requires numerous manual adjustments at year-end and cannot provide HUD managers with accurate, timely, and useful information to manage the agency on a day-to-day basis. HUDCAPS is not used across the department as originally intended by the FSI effort. The Federal Housing Administration (FHA) and the Government National Mortgage Association (Ginnie Mae) continue to maintain their own general ledger/financial management systems that are not integrated with HUDCAPS. HUD also continues to maintain the Program Accounting System (PAS), which it uses to perform funds control and other functions for the department. To help address ongoing deficiencies with its general ledger, FHA recently implemented the general ledger module of a commercial-off-the-shelf (COTS) software package that automates the interface with HUDCAPS. However, it is too early to determine whether this new general ledger system will address FHA's reported deficiencies in this area. HUD is currently in the early stages of deciding whether to upgrade HUDCAPS or acquire and deploy a new financial management system. According to HUD officials, the department has submitted a procurement request for the initial study of the HUD Integrated Financial Management Improvement Project (HIFMIP). The study is expected to document and analyze business functions of the department and the feasibility, risks, and costs of core systems options. Since September 2002, HUD's plans for awarding a contract to conduct a feasibility study have been postponed twice. The latest delay came with the recent hiring of an Assistant Chief Financial Officer for Systems (ACFO), who made a decision to broaden the scope of the Needs Statement to include the financial management needs of FHA and Ginnie Mae, which we view as a sound decision. Proper planning is an essential element to the success of the project and therefore to HUD's effort to correct its long-standing financial management systems problems. HUD now plans to award the contract for the study in May 2003 and to complete the study by July 2004. Given the nature of HUD's longstanding financial management systems problems and the importance of these systems to carrying out HUD's mission and activities, we are recommending that HUD's Secretary make the modernization and integration of its financial management systems a continuing top priority and to take the necessary actions to help ensure successful implementation.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-447R, Department of Housing and Urban Development: Status of Efforts to Implement an Integrated Financial Management System
This is the accessible text file for GAO report number GAO-03-447R
entitled 'Department of Housing and Urban Development: Status of
Efforts to Implement an Integrated Financial Management System' which
was released on April 09, 2003.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products‘ accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
April 9, 2003:
The Honorable Paul S. Sarbanes:
Ranking Minority Member,
Committee on Banking, Housing and:
Urban Affairs:
United States Senate:
The Honorable Jack Reed:
Ranking Minority Member,
Subcommittee on Housing and Transportation:
Committee on Banking, Housing and Urban Affairs:
United States Senate:
Subject: Department of Housing and Urban Development: Status of Efforts
to Implement an Integrated Financial Management System:
Weaknesses in the Department of Housing and Urban Development‘s (HUD)
financial management systems have been a long-standing challenge for
the department and have contributed to our designating two of its major
programs areas as high-risk and the financial management information
systems in particular as a major management challenge. While some
progress has been made, both we and the HUD Office of the Inspector
General (IG) have reported extensively on weaknesses related to HUD‘s
financial management systems. In audits of HUD‘s consolidated financial
statements, the IG has consistently identified several material
internal control weaknesses resulting from inadequate financial
management systems. In recent audit reports, the HUD OIG also noted
that the completion of the development of adequate financial management
systems is the most critical need faced by HUD in improving its
financial management control environment. Responsive financial
management systems are particularly critical to HUD‘s ability to meet
its mission, deliver key services, and establish sufficient management
control over its operations.
In light of these issues, you asked that we (1) summarize HUD‘s past
efforts to implement an integrated financial management system, (2)
identify the challenges HUD faces with its current financial management
systems, and (3) determine the status of HUD‘s current efforts to
identify and address its financial management systems needs.
Results in Brief:
HUD‘s past efforts have not resulted in the implementation of a modern
integrated financial management system to carry out its core accounting
functions and meet other needs. HUD‘s current Central Accounting and
Program System (HUDCAPS), as implemented in fiscal year 1999, is the
product of its Financial System Integration (FSI) effort, which began
in 1991. While this effort did result in the development and deployment
of various modules and systems to support several key programs and
processes, it did not result in an integrated financial management
system, which was a stated goal of the project. In 1998 we
reported[Footnote 1] that even though HUD spent hundreds of millions of
dollars, the FSI effort was not fully successful because of the lack of
(1) adequate project management, (2) finalized project plans that
provided an integration roadmap, and (3) adequate cost-benefit analyses
that properly estimated the costs to achieve the objectives of the plan
and how long it would take to achieve these objectives.
HUD uses HUDCAPS as its core financial management and general ledger
system. However, this system is not efficient, has become outdated, and
has high annual maintenance costs. HUDCAPS requires numerous manual
adjustments at year-end and cannot provide HUD managers with accurate,
timely, and useful information to manage the agency on a day-to-day
basis. HUDCAPS is not used across the department as originally intended
by the FSI effort. The Federal Housing Administration (FHA) and the
Government National Mortgage Association (Ginnie Mae) continue to
maintain their own general ledger/financial management systems that are
not integrated with HUDCAPS. HUD also continues to maintain the Program
Accounting System (PAS), which it uses to perform funds control and
other functions for the department. To help address ongoing
deficiencies with its general ledger, FHA recently implemented the
general ledger module of a commercial-off-the-shelf (COTS) software
package that automates the interface with HUDCAPS. However, it is too
early to determine whether this new general ledger system will address
FHA‘s reported deficiencies in this area.
HUD is currently in the early stages of deciding whether to upgrade
HUDCAPS or acquire and deploy a new financial management system.
According to HUD officials, the department has submitted a procurement
request for the initial study of the HUD Integrated Financial
Management Improvement Project (HIFMIP). The study is expected to
document and analyze business functions of the department and the
feasibility, risks, and costs of core systems options. Since September
2002, HUD‘s plans for awarding a contract to conduct a feasibility
study have been postponed twice. The latest delay came with the recent
hiring of an Assistant Chief Financial Officer for Systems (ACFO), who
made a decision to broaden the scope of the Needs Statement to include
the financial management needs of FHA and Ginnie Mae, which we view as
a sound decision. Proper planning is an essential element to the
success of the project and therefore to HUD‘s effort to correct its
long-standing financial management systems problems. HUD now plans to
award the contract for the study in May 2003 and to complete the study
by July 2004. Given the nature of HUD‘s long-standing financial
management systems problems and the importance of these systems to
carrying out HUD‘s mission and activities, we are recommending that
HUD‘s Secretary make the modernization and integration of its financial
management systems a continuing top priority and to take the necessary
actions to help ensure successful implementation.
In commenting on a draft of this report, HUD agreed with our
recommendation that the Secretary make the integration of the
department‘s financial management systems a continuing top priority and
stated that it has already done so. HUD also discussed at length its
current actions to address its financial management systems challenges
and requested additional recognition of these actions in our report.
While we recognize that HUD is presently taking action, much of this
action has occurred only recently. Our report focuses on HUD‘s
historical efforts to improve its long-standing financial management
systems deficiencies, which have been the subject of our reports for
several decades. As stated in our report,[Footnote 2] in 1984 we
reported financial management problems that included systems that were
inadequate, lacked internal controls, and failed to meet program
managers‘ needs. While HUD has recently begun to renew its efforts to
address these deficiencies, sustained commitment from HUD‘s management
will be needed to completely address and eliminate these weaknesses.
Background:
HUD is the primary federal agency responsible for programs dealing with
housing, community development, and fair housing opportunities. Its
mission is to promote adequate and affordable housing, economic
opportunity, and a suitable living environment free from
discrimination. HUD pursues its mission through the programs offered by
FHA, Ginnie Mae, the Office of Community Planning and Development, the
Office of Public and Indian Housing, and the Office of Fair Housing and
Equal Opportunity. FHA makes housing affordable through its mortgage
insurance programs for multifamily and single-family housing. Ginnie
Mae supports expanded affordable housing by providing an efficient
government-guaranteed secondary market for mortgaged-backed
securities. HUD is one of the nation‘s largest financial institutions
with responsibility for managing more than $550 billion in insured
mortgages and $600 billion in guarantees of mortgage-backed securities.
For fiscal year 2003, HUD‘s budget authority was about $32 billion.
The challenges HUD faces in improving its financial management systems
are not new and have been the subject of GAO reports for several
decades. For example, in 1984 we reported financial management problems
that included systems that were inadequate, lacked internal controls,
and failed to meet program managers‘ needs. In an effort to correct
financial management systems deficiencies, in 1991 HUD initiated the
FSI effort which, as discussed later in this report, was a
departmentwide project to design and implement an integrated financial
management system consisting of both financial and mixed
systems.[Footnote 3] HUDCAPS was a product of this effort.
HUD currently uses numerous financial management and mixed systems to
achieve its mission. HUD uses HUDCAPS as its core financial management
and general ledger system. FHA used a Management Sciences Associates
(MSA) system as its financial management system through fiscal year
2002. FHA now uses Peoplesoft, which was implemented on October 1,
2002, as its general ledger system. Ginnie Mae uses Macola, which
provides for all of its financial accounting needs. In addition, there
are:
* 19 legacy insurance systems that are interfaced with FHA‘s new
general ledger system;
* PAS, which performs funds control and tracks transaction details for
the department; and:
* Hyperion,[Footnote 4] which supports the preparation of the
department‘s financial statements.
HUD‘s financial statement auditors have reported the department‘s lack
of an integrated financial management system that is in compliance with
federal financial system requirements as a material internal control
weakness since fiscal year 1991. In addition, HUD‘s financial statement
auditors have reported HUD as not being in substantial compliance with
the requirements of the Federal Financial Management Improvement Act of
1996 (FFMIA)[Footnote 5] since fiscal year 1997, when reports under the
act were first required. HUD has been reported as not being in
substantial compliance with FFMIA primarily because of deficiencies in
FHA‘s legacy general ledger system. This system did not support credit
reform accounting nor did it comply with the U.S. Standard General
Ledger (SGL) at the transaction level.[Footnote 6] In light of these
issues, in 1999 FHA began the acquisition of a new financial management
system.
In 1994 we designated HUD a high-risk agency, in part because of
inadequate financial management and information systems and slow
progress in correcting fundamental management weaknesses. In our 2003
biannual performance and accountability series report,[Footnote 7] we
identified two of HUD‘s major program areas--single-family mortgage
insurance and rental housing assistance--as high-risk. HUD‘s challenges
with programmatic:
and financial management information systems cut across both programs
and contribute to its high-risk designation. Also, in fiscal years 2001
and 2003 we identified HUD‘s financial management information systems
as a major management challenge in our biannual performance and
accountability series report.
Scope and Methodology:
To summarize the outcome of HUD‘s past efforts to implement an
integrated financial management system and to identify the challenges
HUD faces with current financial management systems, we reviewed prior
GAO and HUD OIG audit reports. We also interviewed officials at the HUD
Office of the Chief Financial Officer (OCFO), Office of the Chief
Information Officer (OCIO), Office of the Inspector General (OIG), FHA,
and Ginnie Mae. To determine the status of HUD‘s current efforts to
identify and address its financial management systems needs, we
interviewed HUD OCFO and OCIO officials. We obtained and reviewed HUD‘s
Statement of Work and Needs Statement for its currently planned
feasibility study to upgrade or replace HUDCAPS and to determine if
HUD‘s identified needs were included in the Statement of Work. We
conducted interviews with FHA officials to discuss their plans for the
implementation of a new core accounting system and to determine whether
this system would be integrated with HUDCAPS. We also conducted
interviews with Ginnie Mae officials to discuss their financial
management system and to determine whether the entity had plans for
acquiring a new system that would be integrated with HUDCAPS.
Our work focused on HUD‘s core financial management systems, including
HUDCAPS and the FHA and Ginnie Mae general ledger systems. We conducted
our work in Washington, D.C. from July 2002 through November 2002 in
accordance with generally accepted government auditing standards.
HUD also suggested several technical comments, which we incorporated
where appropriate.
HUD‘s Past Financial Management:
Systems Integration Efforts Have:
Not Been Successful:
HUD‘s FSI effort, which was initiated in 1991, was intended, among
other things, to implement an integrated financial management system
that would provide timely and accurate information to managers and
enable the department to properly manage its financial resources. While
the project did result in the development and deployment of various
modules and systems to support several key programs and processes, it
did not achieve the primary goal of implementing an integrated
financial management system. Rather, the project‘s main focus was
narrowed to improving HUD‘s core financial management system. HUDCAPS
evolved from this effort and continues to be HUD‘s core financial
management system today.
The CFO Act calls for agencies to develop and maintain an integrated
accounting and financial management system that complies with federal
requirements and provides for (1) complete, reliable, consistent, and
timely information that is responsive to the financial information
needs of the agency and facilitates the systematic measurement of
performance, (2) the development and reporting of cost information, and
(3) the integration of accounting, budgeting, and program information.
In addition, the Office of Management and Budget (OMB) Circular A-127,
Financial Management Systems, requires agencies to establish and
maintain a single integrated financial management system that conforms
with functional requirements published by the Joint Financial
Management Improvement Program (JFMIP).[Footnote 8]
In its 1991 FSI plan, HUD acknowledged that inadequate and
nonintegrated financial management systems rendered it unable to
properly manage its programs and financial resources. The FSI plan
included specific objectives to establish sound financial management
controls, correct material weaknesses, improve financial management,
provide timely and accurate information to managers to enable them to
meet their organizational objectives, meet the goals of 31 U.S.C. §
3512 (d) commonly referred to as the Federal Managers‘ Financial
Integrity Act (FMFIA) of 1982,[Footnote 9] and comply with OMB Circular
A-127, Financial Management Systems.
HUD‘s strategy for achieving the FSI objectives was to replace about
100 of its financial and mixed systems with 9 new standard integrated
systems including a core financial management system.[Footnote 10] This
strategy was based on an analysis which concluded that HUD did not have
the basic financial management systems to serve as the foundation for
an integrated systems environment. The design of the 1991 FSI plan
required that 8 financial systems be integrated with the new core
accounting system. Once the 9 systems were deployed, program offices
were to use them to support their business operations.
In 1993, HUD revised its initial FSI plan in response to (1) slow
progress in implementing systems integration, (2) the need to comply
with revisions to OMB Circular A-127, and (3) senior management‘s
serious doubts about the viability of creating nine new fully
integrated systems and having program offices adapt their business
operations to meet the requirements of these systems by September 1998,
which was the FSI plan‘s original target date. The 1993 plan included
the same primary objectives as the 1991 plan but also included new
objectives such as eliminating the department‘s financial management
systems from OMB‘s list of high-risk areas for management improvement,
being consistent with HUD‘s then current reform plan,[Footnote 11] and
meeting the requirements of the Government Performance and Results Act
of 1993.[Footnote 12] Under the 1993 plan, the CFO‘s office was
required to complete the core financial system project initiated under
the 1991 plan and program offices were required to develop (1) new
systems that would support program management priorities, financial and
management information needs, and business needs, and (2) integrate
these systems with the core financial system. Plans for the remaining
eight standard systems called for in the 1991 plan were cancelled. In
1997, HUD revised its FSI plan again, extending the date for fully
deploying the core financial management system from September 1998 to
October 1999 and incorporating the development and deployment of
additional new systems required to meet the department‘s latest
management reforms and organizational changes.[Footnote 13]
In our 1998 report, we identified several challenges regarding HUD‘s
1997 FSI plan. These challenges included inadequate project management
oversight, lack of finalized project plans, and outdated cost-benefit
analyses. Specifically, we reported on how the department had spent
hundreds of millions of dollars on its effort to develop an integrated
financial management system without having the appropriate project
management processes in place and without knowing how much it would
cost or how long it would take to complete the objectives of the FSI
effort. Title 40 U.S.C. § 11312, commonly referred to as the Clinger-
Cohen Act of 1996, requires agencies to establish a process to assess
the value and risks of information technology (IT) investments,
including specific quantitative and qualitative criteria for comparing
and prioritizing alternative IT projects. In response to the
recommendation in our 1998 report, HUD has established an IT investment
management program to select, control, and evaluate investments
throughout their lifecycle. In this regard, HUD has routinely assessed
and scored proposed projects against departmentwide project selection
criteria and used the program to select IT projects.
As a result of the FSI effort, several modules and systems initiated
under the 1993 and 1997 plans were implemented including HUDCAPS and
systems to support the department‘s Section 8 financial and program
management functions, community planning and development grants, and
procurement process. HUDCAPS, as HUD‘s core financial management
system, was initially intended to replace the general ledger systems at
FHA and Ginnie Mae as well as HUD‘s PAS. However, HUDCAPS has not
replaced these systems. Both FHA and Ginnie Mae have continued to
maintain their own general ledger systems, and HUD continues to
maintain PAS. HUDCAPS functions as the department‘s financial
management system, receiving data from FHA‘s and Ginnie Mae‘s general
ledger systems on a periodic basis.
Current Financial Management Systems Are Outdated and Continue to
Have Deficiencies:
In January 2003, for the twelfth year in a row, the HUD OIG 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. In addition, as
acknowledged by HUD officials, HUDCAPS uses outdated technology and is
a version of a COTS software package that is no longer available. HUD
is totally dependent upon the vendor for software modifications,
maintenance, and enhancements because the vendor owns the source code
for the system. As a result, HUD will have to continue to pay the
vendor for support of any new modifications or upgrades to HUDCAPS.
Further, as recognized by HUD officials, HUDCAPS is neither a robust
nor efficient system. For example, it cannot be modified to account for
multiyear monies at year-end, resulting in extensive manual effort to
reclassify dollars from 1-year accounts to multiyear accounts. This is
one reason that HUD has to rely on extraordinary manual efforts to
prepare its financial statements.
To promote more timely financial reporting and to discourage the costly
manual efforts that many agencies have used to obtain unqualified
opinions of financial statements without addressing their underlying
systems problems, OMB accelerated audited financial statement reporting
dates by 1 month for fiscal years 2002 and 2003 and by 3½ months for
fiscal year 2004. OMB also requires the preparation of unaudited
quarterly financial statements. HUD has been able to issue its audited
financial statements by the required due dates (most recently February
1, 2003) for the last 3 fiscal years. HUD has also received unqualified
opinions on these statements since fiscal year 2000. However, because
the department‘s current financial management systems are outdated,
inefficient, and require extensive manual intervention, HUD will be
increasingly challenged to meet these reporting dates as they are
further accelerated.
HUD‘s financial statement auditors have also reported weaknesses in
FHA‘s financial management system for several years. As discussed
earlier in this report, until October 1, 2002, FHA used MSA as its
financial management system. MSA is an old version of a COTS software
package that did not (1) comply with governmental accounting standards,
(2) have funds control or budgetary modules, and (3) comply with
federal credit reform accounting. In the fiscal year 2002 financial
statement audit report, the HUD OIG reported HUD as not being in
substantial compliance with FFMIA primarily because FHA‘s systems did
not comply with the SGL at the transaction level. FHA‘s 19 legacy
insurance systems that fed transactions to its commercial general
ledger system lacked the capabilities to process transactions in the
SGL format. Therefore, FHA provided only consolidated summary-level
data to HUDCAPS. To do this, FHA used several manual processing steps,
including the use of personal-computer-based software to convert the
summary-level commercial accounts to government SGL and transfer the
account balances to HUDCAPS. This process did not comply with JFMIP
requirements that the core financial system provide for automated month
and year-end closing of SGL accounts and roll-over of the SGL account
balances.
To help address deficiencies with its legacy general ledger system, as
a first step in upgrading its overall financial management system FHA
implemented the general ledger module of a COTS software package on
October 1, 2002. This module automates the monthly interface of
summary-level balances with HUDCAPS. The project plan for FHA‘s new
system includes full implementation of other FHA financial modules,
such as cash management and funds control, and the modification or
replacement of various insurance systems by fiscal year 2007. Although
the COTS software that FHA purchased has been tested and certified as
being compliant with JFMIP requirements, it is too early to determine
whether the new general ledger module will meet all of FHA‘s identified
needs and fully address the deficiencies that have hampered FHA‘s
compliance with FFMIA.
Ginnie Mae has used its current general ledger and financial management
system for the last 10 years and has no plans to replace it. In
addition, Ginnie Mae has received unqualified opinions for many years,
and its financial statement auditors have not reported any material
weaknesses or reportable conditions since 1995. However, as previously
mentioned, because Ginnie Mae‘s system is not integrated with HUDCAPS,
it may ultimately need to be modified or replaced to achieve full
financial management systems integration at HUD.
HUD Is in the Early Stages of Assessing its Current Financial
Management System Needs:
HUD is currently in the early stages of deciding whether to upgrade
HUDCAPS or acquire and deploy a new integrated system that would better
meet its needs. While in August 2000 HUD developed a financial vision
to implement a new integrated financial management system,[Footnote 14]
actions on the financial management systems vision of 2000 were largely
deferred. For the past 2 years, HUD‘s management has focused its
attention on stabilizing and enhancing the existing financial
management systems operating environment in order to enable the
preparation of auditable financial statements and address internal
control weaknesses reported in the HUD OIG annual financial statement
audit reports. These efforts were instrumental in helping HUD achieve
unqualified audit opinions for the last 3 years. However, serious
internal control weaknesses related to HUD‘s financial management
systems remain.
In May 2002, HUD submitted a procurement request for the initial study
of the HUD Integrated Financial Management Improvement Project
(HIFMIP). This study is expected to document and analyze the
department‘s business functions and the feasibility, risks, and costs
of core system options, to include modifying existing systems, COTS
implementation, and outsourcing opportunities. HUD‘s plans for awarding
a contract for the initial study and completing the contract have
changed several times since the initial procurement request. For
example, HUD initially expected to award a contract by the end of
September 2002 for work to be completed by April 2003. However, with
the recent hiring of an ACFO for Systems, HUD‘s plans were delayed from
September 2002 to December 2002 so that the scope of the Needs
Statement could be broadened to include the financial management needs
of FHA and Ginnie Mae, which we view as a sound decision. HUD currently
plans to award a contract for the study by May 2003 and to update the
financial management systems vision by January 2004. HUD also plans to
complete a contracted study of core systems options for management
decision making under the HIFMIP by July 2004.
Conclusions:
In the past, HUD has not sufficiently planned for the implementation of
a departmentwide integrated financial management system or provided the
necessary direction, oversight, and sustained attention needed for a
successful project. While HUDCAPS was an improvement over HUD‘s earlier
core financial management system, it fell far short of HUD‘s goal to
develop a departmentwide integrated financial management system. As a
result, long-standing financial management deficiencies, including the
availability of timely, reliable data to support decision making,
remain a challenge and HUD‘s ability to meet accelerated financial
reporting requirements is made much more difficult. HUD management has
recently renewed its efforts to address the department‘s systems
deficiencies. Sustained commitment will be needed to successfully
complete these efforts.
Recommendation:
To help ensure the success of future systems implementation efforts, we
recommend that the Secretary of the Department of Housing and Urban
Development make the modernization and integration of the department‘s
financial management systems a continuing top priority and direct the
Chief Financial Officer to take the following steps:
* work collaboratively with the directors of the department‘s
components,
* acquire a qualified and experienced project manager,
* obtain stakeholder involvement,
* develop and maintain milestones, and:
* establish measurable performance indicators.
Agency Comments and Our Evaluation:
In written comments (reprinted in app. I) on a draft of this report,
HUD generally agreed with our recommendation but suggested that we
recognize the actions the department has already taken to implement the
recommendation. While we recognize that HUD has already taken some
actions to implement the recommendation in our report, the thrust of
our recommendation is for sustained management commitment in order to
ensure the success of its modernization and integration efforts.
Because this systems implementation will be a long-term effort for the
department, it will need to achieve a disciplined effort consistent
with recognized best practices referred to in our recommendation. Our
prior experiences in reviewing major systems acquisitions have shown
that failure to establish and enforce key processes outlined in
legislation and expanded on in best practices developed by GAO and
others is a salient factor for efforts that end up costing more and
taking longer than estimated and that fall short of performance
expectations. Many of these best practices were not present in HUD‘s
past systems implementation effort and will be a challenge for the
department in future efforts.
Regarding financial management systems integration requirements, HUD
stated that our report incorrectly implies that it is required to have
one departmental financial management system encompassing FHA, Ginnie
Mae, and all other HUD program activity. Our report does not say this
or even imply this. Rather, we state that HUD‘s past FSI effort did not
result in an integrated financial management system, which was a stated
goal of the project that began in 1991. We also state that HUD‘s
existing financial management system is not efficient, has become
outdated, and has high annual maintenance costs. HUD‘s letter
acknowledges all of these issues. Federal financial management system
requirements state that systems should be planned, managed, and linked
together electronically in an efficient and effective manner to provide
departmentwide financial system support necessary to meet the agency‘s
financial management needs. As was reported by the HUD OIG in its
report on HUD‘s fiscal year 2002 financial statements, the agency‘s
systems do not comply with these requirements.
We are sending copies of this report to the Honorable Mel Martinez,
Secretary of the Department of Housing and Urban Development, Angela
Antonelli, the Chief Financial Officer, and other interested parties.
We will make copies available to others upon request.
If you have any questions about this letter, please contact me at (202)
512-9508 or by email at calboml@gao.gov. Key contributors to this
assignment were Rosa R. Harris, Debra S. David, David Gill, and Estelle
Tsay.
Sincerely yours,
Linda M. Calbom:
Director, Financial Management and Assurance:
Signed by Linda M. Calbom:
Appendix I:
Comments from the Department of Housing and Urban Development:
U.S. Department of Housing and Urban Development Washington, D.C.
20410-0100:
CHIEF FINANCIAL OFFICER:
MAR 11, 2003:
Ms. Linda Calbom:
Director, Financial Management and Assurance Team:
General Accounting Office 441 G Street NW, Suite 5Q24 Washington, DC
20548:
Dear Ms. Calbom:
Thank you for the opportunity to provide comments on the revised draft
report of March 3, 2003, entitled Department of Housing and Urban
Development: Status of Efforts to Implement an Integrated Financial
Management System (GAO-03-447R). We
appreciate the revisions made to address many of our February 21st
comments on the original February 7th version of the draft report. We
are reiterating a few comments that were not fully addressed and
request that the final report: 1) reflect HUD‘s position on the
adequacy of the Department‘s current financial management systems
integration design, and 2) provide greater recognition of the many
substantive financial management systems improvements made by HUD
during the 12 year period covered by this review. We generally agree
with the recommendation contained in the draft report and request
recognition of the actions the Department has already taken to
implement the recommendation.
Our specific comments are summarized below with further details in the
enclosed table:
Financial Management Systems Integration Requirements:
The revised draft report incorrectly implies that HUD is required to
have one departmental financial management system encompassing Federal
Housing Administration (FHA), Government National Mortgage Association
(Ginnie Mae) and all other HUD program activity. Office of Management
and Budget (OMB) Circular A-127, Financial Management Systems, states
that: ’The term …single integrated financial management system‘ means a
unified set of financial systems and the financial portions of mixed
systems encompassing the software, hardware, personnel, processes
(manual and automated), procedures, controls and data necessary to
carry out financial management functions, manage financial operations
of the agency and report on the agency‘s financial status to central
agencies, Congress and the public.“ This definition allows that large,
diverse and complex agencies such as HUD may have a set of multiple
financial management systems that are integrated through manual or
automated processes for consolidated reporting purposes.
In HUD‘s current business environment, the HUD Central Accounting and
Program System (HUDCAPS), and its various supporting subsidiary systems
such as the Program Accounting System (PAS), serve as the Department‘s
core financial management system. FHA and Ginnie Mae have separate
program funding and operations and are required by statute to produce
their own annual audited financial statements. HUD currently integrates
the stand-alone FHA and Ginnie Mae financial statement information with
HUDCAPS information on HUD‘s general program activity through the
Hyperion software used to facilitate HUD‘s consolidated financial
reporting process. This makes perfect business sense for HUD, and is an
acceptable model for private sector conglomerates and at other federal
agencies that include government corporations or large separate funds
such as Ginnie Mae and FHA. While the loading of FHA and Ginnie Mae
reporting data is currently done manually, the manual process is low-
risk with compensating controls, including the Office of the Inspector
General‘s (OIG) independent financial statement audit. Nevertheless, as
recommended by the OIG, HUD is pursuing a more efficient automated
transfer of the FHA and Ginnie Mae reporting information for
consolidation in Hyperion.
Past HUD Efforts to Implement an Integrated Financial Management
System:
HUD agrees that the 1991 Financial Systems Integration (FSI) project
was not successfully implemented as originally envisioned or designed.
However, the draft GAO report incorrectly implies that achieving the
now twelve-year old FSI project design is a prerequisite for HUD‘s
compliance with current federal financial management systems
requirements. We believe alternative financial management systems
designs can work to meet HUD‘s needs, in full compliance with federal
requirements. It is apparent from GAO‘s overview of the FSI project
history that the project never gained widespread support and the
feasibility and reasonableness of the proposed large scale overhaul of
the Department‘s financial and mixed information systems and
corresponding business processes was questioned from early on in the
FSI project. As the draft report describes, this led to a series of
project changes that limited the project‘s focus to needed improvements
to HUD‘s core financial management system.
The GAO report should acknowledge that significant financial management
systems improvements were made from 1991 to date, as evidenced by the
fact that the Department moved from being an agency that could not
produce auditable consolidated financial statements prior to fiscal
year 1991, to an agency that received its first unqualified audit
opinion in fiscal year 1998, with unqualified audit opinions for the
last three consecutive fiscal years-2000 through 2002. HUD‘s core
financial management systems improvements since 1991 have included: 1)
the ability to post to the Standard General Ledger (SGL) at the
transaction level for HUD‘s general program activity, 2) full
automation of the reporting of cash management activity with the
Treasury, 3) monthly reconciliation of the funds balance with Treasury,
4) elimination of duplicate data entry in areas such as travel expense,
through integration of source systems with the general ledger, 5)
improved reporting through data warehousing, and 6) expanded electronic
commerce through Internet-based payment and reporting processes for
recipients of HUD funds. While the revised draft report focuses
primarily on the HUDCAPS general ledger:
component of the FSI project, other GAO reports have recognized HUD‘s
successful development and deployment of many other FSI project efforts
that have provided needed support for the Department‘s Section 8
financial and program management functions, community planning and
development grants, the procurement process, and other HUD program
areas. Since 2000, HUD‘s efforts have been focused on stabilizing and
enhancing the existing financial management systems operating
environment to overcome the audit disclaimer issues from fiscal year
1999 and to eliminate several reportable conditions from the OIG‘s
annual financial statement audits.
Current Financial Management Systems Challenges at HUD:
While HUD agrees that the Department‘s core financial management system
has inefficiencies and is costly to maintain, our internal assessments
conclude that the core financial management system is substantially
compliant with the requirements of the Joint Financial Management
Improvement Project (JFMIP). As GAO acknowledges, the FHA Subsidiary
Ledger Project is well under way to replace FHA‘s commercial accounting
system with a system that is fully compliant with federal requirements.
It should be further acknowledged that HUD has timely produced
auditable consolidated financial statements, and has received
unqualified audit opinions on those statements, for the past three
fiscal years. Furthermore, the completion of the audit of HUD‘s fiscal
year 2002 consolidated financial statements was successfully
accelerated by one month to January 31, 2003. The accelerated audit was
augmented by HUD‘s preparation of mid-year consolidated financial
statements in fiscal year 2002, and HUD has begun the preparation and
submission of quarterly statements in fiscal year 2003. HUD is planning
to further accelerate the preparation and audit of its fiscal year 2003
statements as a step towards the mandated accelerated annual reporting
date of November 15, 2004, for fiscal year 2004.
Although HUD has made great progress towards the objective of producing
more timely, accurate and relevant financial information for effective
management of the Department, we fully acknowledge that the challenge
remains to eliminate the remaining material weakness and reportable
condition issues reported in the OIG‘s audit of the Department‘s
consolidated fiscal year 2002 financial statements. In some cases,
HUD‘s ability to correct these internal control weakness issues, such
as the need to improve FHA‘s controls over budget execution and funds
control, is clearly dependent on needed financial management systems
improvements. Other weakness issues, such as controls over obligation
balances, require program process improvements to better use existing
financial management systems capabilities and to provide more timely
information to existing systems to strengthen management controls and
improve decision making on some funded activities. The draft GAO report
lacks specificity on the nature of HUD‘s remaining financial management
systems weaknesses and does not identify any other financial management
systems needs not already reflected in the OIG‘s fiscal year 2002
consolidated financial statement audit report.
HUD‘s Commitment to Meeting Financial Management Systems _Needs:
Financial management systems improvements are a top priority for HUD
and this administration. We have focused our attention and the
necessary resources on addressing HUD‘s most significant financial
management systems needs, those in FHA, and on planning for other
needed improvements. The FHA Subsidiary Ledger Project is the key to
bringing HUD into substantial compliance with federal financial
management requirements by addressing FHA‘s need to implement the SGL
at the transaction level and provide adequate systems support for
budget execution and funds control and credit reform accounting. We
successfully completed a major milestone of this project on-schedule in
October 2002, to provide FHA with a new operating general ledger system
that had been in various planning stages for nearly a decade.
The current administration has taken a deliberate and methodical
approach to properly planning for the next generation core financial
management system for the Department. While the draft report correctly
indicates that HUD deferred action on an August 2000 vision for the
next generation core financial management system, it does not fully
explain the basis for that decision and the long-term benefits
anticipated from allowing for proper systems planning. Since the August
2000 systems vision was developed at the end of the prior
administration, the incoming administration wanted to study the
proposal before making the significant resource commitment necessary to
carry out the proposal or desirable alternatives. Furthermore, the HUD
OIG specifically recommended that action on the vision be deferred
pending further study of the feasibility, risk and cost-benefit of
various options for the next generation core financial management
system.
As HUD‘s new Chief Financial Officer, my decision to defer action on
the vision and further study the Department‘s systems options was
supported by the GAO‘s own conclusion that the previous HUD FSI Project
failed to achieve its original objectives due, in part, to a lack of
finalized plans and outdated benefit-cost analysis. In revisiting the
August 2000 vision, I wanted to consider FHA‘s related experience on
the FHA Subsidiary Project and perform benchmarking of other agency
experiences with consideration of best practices and lessons learned.
Additional reasons for not rushing to implement the vision included the
need to assess the possible impacts of new OMB directed financial
management systems initiatives, and to coordinate with the HUD Chief
Information Officer‘s efforts to develop the ’as is“ and ’to be“
Enterprise Architecture for the financial management segment of the
Department. We believe that the time we are devoting to properly
planning the HUD Integrated Financial Management Improvement Project
(HIFMIP) will enable HUD to better achieve its objective for a more
efficient and effective financial management systems operating
environment that better meets the Department‘s business needs and
complies with federal requirements.
With respect to the proposed GAO recommendation in the draft report,
the Department has already taken the actions needed to address it.
Improved integration of the Department‘s financial management systems
is a top priority for the Department, as evidenced by the inclusion of
both the FHA Subsidiary Ledger and HIFMIP efforts in the:
President‘s Management Agenda for HUD. I established a HIFMIP Executive
Advisory Committee consisting of principals that would be directly
impacted by this effort, including FHA and Ginnie Mae, with an advisory
role for the HUD OIG. A kick-off meeting of the committee was held on
January 8, 2003 and a working level group is being formed to include
all stakeholders. An Assistant Chief Financial Officer for Systems with
a wealth of project management and systems implementation experience
was hired in October 2002. Reporting to him is a Project Manager hired
for the HIFMIP effort in February 2003. HUD plans to award the HIFMIP
support contract by May 2003, with work completed on the HIFMIP Vision
by January 2004 and feasibility studies with a systems recommendation
by July 2004. Initial project milestones and measurable performance
indicators have been established and will be refined and tracked for
all aspects of HIFMIP. HUD has been working diligently over the past
two years to fund, improve and plan further needed improvements to the
Department‘s financial management systems.
As you complete your review and final report, we request full
consideration of our comments in providing an accurate and balanced
assessment of HUD‘s continuing financial management systems needs and
efforts to meet those needs. If you or your staff has questions, please
contact James M. Martin, Assistant Chief Financial Officer for
Financial Management, on (202) 708-0614, extension 3706.
Sincerely,
Angela M. Antonelli:
Enclosure:
The following are our comments on HUD‘s letter received on March 11,
2003.
GAO Comments:
See ’Agency Comments and Our Evaluation“ section of this report.
HUD provided additional technical suggestions which were incorporated
as appropriate.
Our report does not advocate or imply that achieving a 12-year-old
project design is a prerequisite for HUD‘s compliance with current
federal financial management systems requirements. Our report discusses
why HUD‘s past systems implementation effort had not been successful so
that past mistakes would not be repeated in future systems
implementation projects. The recommendations made in our 1998 report
were conceptual in nature and would be applicable to any systems
development initiative that HUD chooses to pursue.
Our report acknowledges HUD‘s unqualified opinions on its financial
statements as well as its ability to issue these statements by the
required due dates for the last 3 fiscal years. Our point is that HUD‘s
current process for producing financial statements is not efficient
because its current financial management systems are outdated and
require manual intervention. Further, these systems do not provide
timely, reliable, and useful information to manage the agency on a day-
to-day basis, which is the end goal of the CFO Act and a prerequisite
to good financial management.
The objective of our report was to convey the nature of HUD‘s financial
management systems needs rather than to identify specific weaknesses.
These specific weaknesses are clearly outlined in the OIG‘s recent
audit report on the fiscal year 2002 financial statements.
We agree that planning is essential to the success of any systems
implementation project, which is clearly stated in our report.
(190065):
FOOTNOTES
[1] U.S. General Accounting Office, HUD Information Systems: Improved
Management Practices Needed to Control Integration Cost and Schedule,
GAO/AIMD-99-25 (Washington, D.C.: Dec.18, 1998).
[2] U.S. General Accounting Office, Increasing the Department of
Housing and Urban Development‘s Effectiveness Through Improved
Management, Vol.1, GAO/RCED-84-9 (Washington, D.C.: Jan. 10, 1984).
[3] Mixed systems are those that support both programmatic and
financial information needs.
[4] Hyperion is the software within HUDCAPS used to compile the general
ledger information for reporting purposes and financial management
consolidation.
[5] FFMIA requires the 24 major departments and agencies covered by the
Chief Financial Officers Act of 1990 (CFO Act) to implement and
maintain financial management systems that comply substantially with
(1) federal financial management systems requirements, (2) applicable
federal accounting standards, and (3) the U.S. Government Standard
General Ledger at the transaction level.
[6] The SGL provides a standard chart of accounts and standardized
transactions that agencies are to use in all of their financial
systems.
[7] U.S. General Accounting Office, Major Management Challenges and
Program Risk: Department of Housing and Urban Development, GAO-03-103
(Washington, D.C.: January 2003).
[8] JFMIP is a joint and cooperative undertaking of OMB, the Department
of the Treasury, the Office of Personnel Management (OPM), and GAO
working with executive agencies to improve financial management
practices throughout the government.
[9] Section 4 of FMFIA requires agencies to report whether their
accounting systems conform to the accounting principles and standards
mandated by the Comptroller General of the United States.
[10] The initial nine systems in the 1991 FSI plan were the (1) core
accounting system, (2) mortgage insurance system, (3) administrative
accounting system, (4) mortgage-backed securities system, (5) grants
management system, (6) debt collection/management system, (7) notes/
loan servicing system, (8) project/recipient monitoring system, and (9)
management information system.
[11] In 1994, the HUD Secretary announced the HUD Reinvention Blueprint
Plan, intended to reinvent and transition the department from a
’lumbering bureaucracy to a streamlined partner with state and local
governments.“
[12] The Government Performance and Results Act of 1993 requires
agencies to set goals, measure performance, and report on their
accomplishments.
[13] The ’HUD 2020 Management Reform Plan“ issued in 1997 included, as
one of its reforms, the development and implementation of an integrated
financial management system that is accurate, reliable, and timely. In
his confirmation hearing, Secretary Cuomo stated that his top priority
was to put HUD‘s management systems in order and to restore effective
management and financial accountability at HUD. This plan established
an October 1999 deadline for fully deploying an integrated core
financial system.
[14] This document described HUD‘s plans, at that time, for developing
and implementing an integrated financial management system.
