Public Housing
HUD's Oversight of Housing Agencies Should Focus More on Inappropriate Use of Program Funds Gao ID: GAO-09-33 June 11, 2009The Department of Housing and Urban Development (HUD) provided over $6.7 billion in fiscal year 2008 to housing agencies to operate, modernize, and develop about 1.2 million public housing units. It is important that HUD exercise sufficient oversight of housing agencies to help ensure that public housing funds are being used as intended and properly managed. In this report, GAO examines HUD's oversight processes for detecting housing agencies at risk of inappropriate use and mismanagement of public housing funds. GAO analyzed HUD financial data on about 3,300 housing agencies, compared HUD's oversight policies with program and agency objectives, and interviewed agency officials.
Key HUD oversight processes could be more focused on identifying potential inappropriate use or mismanagement of public housing funds. HUD primarily relies on single audits to identify such problems, although HUD, its Office of Inspector General (OIG), and the President's Council on Integrity and Efficiency (now known as the Council of the Inspectors General on Integrity and Efficiency) have identified weaknesses with some audits. Further, even when these audits do identify issues, HUD does not systematically summarize audit findings to identify and understand emerging and persistent issues to better monitor housing agencies for inappropriate use and mismanagement of public housing funds. Understanding these problems could be useful for identifying housing agencies that are at greater risk of inappropriately using or mismanaging public housing funds. HUD uses the Public Housing Assessment System (PHAS) to monitor and rate the overall condition and financial health of public housing agencies. However, PHAS is not intended to identify inappropriate uses of public housing funds and is limited in its ability to detect potential mismanagement. HUD also analyzes the financial data of public housing agencies, but its review focuses on the accuracy and completeness of the information used to calculate PHAS scores. GAO analyzed financial data from the housing agencies and found many housing agencies showed indicators that they were at risk of potential inappropriate use and mismanagement of public housing funds--while most received passing PHAS scores. For example, GAO found that from 2002 to 2006, 200 housing agencies had written checks for more than the funds available in their bank accounts (bank overdrafts) on average of $25,000 or more. However, 75 percent of these agencies received passing PHAS scores. Such overdrafts raise questions about these agencies' cash management. But HUD does not use these and similar measures to identify housing agencies at greater risk of inappropriately using or mismanaging public housing funds. Without fully leveraging the audit and financial information it collects, the department limits its ability to identify housing agencies that are at greater risk of inappropriately using or mismanaging program funds.
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-09-33, Public Housing: HUD's Oversight of Housing Agencies Should Focus More on Inappropriate Use of Program Funds
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Report to Congressional Addressees:
United States Government Accountability Office:
GAO:
June 2009:
Public Housing:
HUD's Oversight of Housing Agencies Should Focus More on Inappropriate
Use of Program Funds:
HUD's Oversight of Public Housing Funds:
GAO-09-33:
GAO Highlights:
Highlights of GAO-09-33, a report to congressional addressees.
Why GAO Did This Study:
The Department of Housing and Urban Development (HUD) provided over
$6.7 billion in fiscal year 2008 to housing agencies to operate,
modernize, and develop about 1.2 million public housing units. It is
important that HUD exercise sufficient oversight of housing agencies to
help ensure that public housing funds are being used as intended and
properly managed. In this report, GAO examines HUD‘s oversight
processes for detecting housing agencies at risk of inappropriate use
and mismanagement of public housing funds. GAO analyzed HUD financial
data on about 3,300 housing agencies, compared HUD‘s oversight policies
with program and agency objectives, and interviewed agency officials.
What GAO Found:
Key HUD oversight processes could be more focused on identifying
potential inappropriate use or mismanagement of public housing funds.
HUD primarily relies on single audits to identify such problems,
although HUD, its Office of Inspector General (OIG), and the President‘
s Council on Integrity and Efficiency (now known as the Council of the
Inspectors General on Integrity and Efficiency) have identified
weaknesses with some audits. Further, even when these audits do
identify issues, HUD does not systematically summarize audit findings
to identify and understand emerging and persistent issues to better
monitor housing agencies for inappropriate use and mismanagement of
public housing funds. Understanding these problems could be useful for
identifying housing agencies that are at greater risk of
inappropriately using or mismanaging public housing funds. HUD uses the
Public Housing Assessment System (PHAS) to monitor and rate the overall
condition and financial health of public housing agencies. However,
PHAS is not intended to identify inappropriate uses of public housing
funds and is limited in its ability to detect potential mismanagement.
HUD also analyzes the financial data of public housing agencies, but
its review focuses on the accuracy and completeness of the information
used to calculate PHAS scores. GAO analyzed financial data from the
housing agencies and found many housing agencies showed indicators that
they were at risk of potential inappropriate use and mismanagement of
public housing funds”while most received passing PHAS scores. For
example, GAO found that from 2002 to 2006, 200 housing agencies had
written checks for more than the funds available in their bank accounts
(bank overdrafts) on average of $25,000 or more. However, 75 percent of
these agencies received passing PHAS scores (see figure below). Such
overdrafts raise questions about these agencies‘ cash management. But
HUD does not use these and similar measures to identify housing
agencies at greater risk of inappropriately using or mismanaging public
housing funds. Without fully leveraging the audit and financial
information it collects, the department limits its ability to identify
housing agencies that are at greater risk of inappropriately using or
mismanaging program funds.
Figure: PHAS Scores for the 200 Housing Agencies with Average Bank
Overdrafts of $25,000 or More:
[Refer to PDF for image: pie-chart]
Housing agencies with passing PHAS score: 74.5%;
Housing agencies with substandard PHAS score: 24.5%;
Housing agencies with no PHAS score: 1.0%.
Source: GAO analysis of housing agency financial data schedules and HUD
data.
[End of figure]
What GAO Recommends:
To better focus its oversight processes to identify housing agencies at
risk of misuse and mismanagement of public housing funds, GAO
recommends that HUD (1) regularly summarize and evaluate the results of
audits of public housing agencies to identify common problems, monitor
emerging issues, and evaluate overall monitoring and oversight
processes; and (2) develop mechanisms”such as financial indicators”and
use them as part of its ongoing monitoring and review of housing
agencies‘ use of public housing funds.
In agency comments, HUD stated that the report contains useful
information and plans to evaluate alternative ways to address our
recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-09-33] or key
components. For more information, contact Mathew J. Scirč at (202) 512-
5555 or sciremj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
HUD's Primary Oversight Processes Could Be Better Focused to Detect
Housing Agencies at Risk of Inappropriate Uses or Mismanagement of
Public Housing Funds:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objective, Scope, and Methodology:
Appendix II: Comments from the U.S. Department of Housing and Urban
Development:
Appendix III: GAO Contact and Staff Acknowledgments:
Figures:
Figure 1: Public Housing Assessment System Scoring Subsystem
Components:
Figure 2: Percentage of Housing Agencies with Potentially Improper
Advances of Operating Funds (Balances Due from Other Programs in Excess
of $100,000), Fiscal Years 2002-2006:
Figure 3: PHAS Scores for Housing Agencies with Potential Improper
Operating Fund Advances (Balances Due from Other Programs in Excess of
$100,000), Fiscal Years 2002-2006:
Figure 4: PHAS Scores for Housing Agencies with Potential Funds
Mismanagement (Average Bank Overdrafts in Excess of $25,000), Fiscal
Years 2002-2006:
Abbreviations:
ARCATS: Audit Resolution and Corrective Actions Tracking System:
FASS: Financial Assessment Subsystem:
FDS: Financial Data Schedules:
HUD: Department of Housing and Urban Development:
MAPS: Monitoring and Planning System:
MASS: Management Assessment Subsystem:
MDHA: Miami-Dade Housing Authority:
OIG: Office of Inspector General:
OMB: Office of Management and Budget:
PASS: Physical Assessment Subsystem:
PCIE: President's Council on Integrity and Efficiency:
PHAS: Public Housing Assessment System:
REAC: Real Estate Assessment Center:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 11, 2009:
The Honorable Christopher J. Dodd:
Chairman:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Robert Menendez:
Chairman:
Subcommittee on Housing, Transportation, and Community Development:
Committee on Banking, Housing and Urban Affairs:
United States Senate:
In fiscal year 2008, the Department of Housing and Urban Development
(HUD) provided approximately $6.7 billion to about 3,300 public housing
agencies to subsidize the costs of operating, modernizing, and
developing about 1.2 million units through the public housing program.
HUD oversees these agencies in cities and communities nationwide to
ensure compliance with extensive program requirements. Over the years,
we and HUD's Office of Inspector General (OIG) have identified
weaknesses in HUD's monitoring of housing agencies' compliance with
program requirements and in the agencies' accounting practices as well
as instances of misspent public housing funds. A number of
recommendations have been made addressing these shortcomings. It is
important that HUD exercise adequate oversight of housing agencies' use
of public housing funds, and as a result, we undertook a review of
HUD's oversight processes under the Acting Comptroller General's
authority to conduct evaluations on his own initiative. This report
examines the oversight processes HUD employs to identify housing
agencies that are at risk of inappropriately using and mismanaging
public housing funds.
To evaluate HUD's oversight processes, we compared HUD's oversight
policies with its programmatic and agencywide oversight goals. We
analyzed housing agency audits and available HUD financial data on its
portfolio of housing agencies. We also interviewed HUD headquarters and
field office officials. Finally, we met with officials from four field
offices and visited nine housing agencies in California, Florida,
Maryland, and Washington, D.C. In selecting these sites, we considered
various factors, including recent allegations of mismanagement of
public housing funds, the activity and size of public housing programs
in these locations, and proximity to GAO locations.
We conducted this performance audit from January 2007 through March
2009 in Alameda, Monterey, Richmond, and San Francisco, California;
Miami and Fort Lauderdale, Florida; Baltimore and Prince George's
County, Maryland; and Washington, D.C. in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on the audit
objectives. Appendix I provides further details of our objective,
scope, and methodology.
Results in Brief:
Key HUD oversight processes could be more focused to enable HUD to
identify housing agencies that may be at greater risk of
inappropriately using or mismanaging public housing funds. The primary
process that HUD uses to identify inappropriate use and mismanagement
of public housing funds is housing agencies' single audits.[Footnote 1]
Although many single audits have reported problems at individual
housing agencies, HUD has found problems with the quality of individual
housing agencies' single audits that can limit their reliability. In
addition, the President's Council on Integrity and Efficiency (PCIE)
issued a report on its National Single Audit Sampling Project in June
2007 that presented compelling evidence that a serious problem with
single audit quality continues to exist.[Footnote 2] Also, annual
single audits may not assess compliance with some public housing
program requirements administered by these housing agencies, resulting
in coverage gaps that may limit the ability of these audits to
consistently identify misuse and mismanagement of funds in a timely
manner. Despite these limitations, the department continues to
primarily rely on single audits to identify potential inappropriate use
and mismanagement of public housing funds and is focusing on efforts to
improve their quality. Further, even when single and OIG audits report
problems, HUD does not maximize the audits' utility by systematically
summarizing and analyzing audits that report commonly occurring
problems of misuse and mismanagement. Understanding these problems
could be useful for evaluating and monitoring HUD's overall monitoring
and oversight processes and identifying housing agencies that are at
greater risk of inappropriately using or mismanaging public housing
funds. For example, the department could use this understanding to
develop indicators of potential problems and use these to monitor
housing agencies. The department currently uses a system for monitoring
and rating the performance of housing agencies--known as the Public
Housing Assessment System (PHAS). However, PHAS is limited in its
ability to identify housing agencies that may be at greater risk of
inappropriate use or mismanagement of funds because it was not designed
to detect inappropriate use, and in some cases has not detected housing
agencies showing signs of housing fund mismanagement. Further, HUD has
stated that its analysis of housing agency financial data is primarily
intended to ensure the accuracy of the information that is used to
calculate the housing agencies' PHAS scores and not to identify at-risk
housing agencies. Our analysis of housing agency financial data
illustrates how such data could be leveraged to identify housing
agencies at greater risk of inappropriate use or mismanagement of
public housing funds that neither PHAS nor the department's current
approach to analyzing financial data would detect. For example, our
analysis of PHAS and financial data from 2002 through 2006 found that
200 housing agencies had written checks that exceeded the funds
available in their bank accounts (bank overdrafts) by $25,000 or more-
-indicating a potential that these housing agencies could have serious
cash and financial management problems and could be prone to increased
risk of fraudulent use of funds. However, 75 percent of these agencies
received passing PHAS scores. Although HUD has focused its efforts on
the challenges of improving the quality of single audits, the
department has not taken steps to develop mechanisms to mitigate the
limitations of its oversight processes. Without fully leveraging the
audit and financial information it collects, the department limits its
ability to identify housing agencies that are at greater risk of
inappropriately using or mismanaging program funds.
In order to strengthen its oversight of housing agencies administering
the public housing program and better leverage information that it
already collects, we are recommending that the Secretary of the
Department of Housing and Urban Development regularly summarize and
systematically evaluate the results of OIG and single audits of public
housing agencies to allow program managers to identify and understand
problems of potential inappropriate use and mismanagement of public
housing funds, identify emerging issues, and evaluate overall
monitoring and oversight processes. This report also recommends that
the Secretary develop mechanisms--such as financial indicators--to
identify housing agencies that are at greater risk of inappropriately
using or mismanaging public housing funds.
In written comments on a draft of this report, HUD stated that the
report contains useful information but that it did not believe our
recommendations would achieve the objectives of strengthening oversight
of housing agencies that administer the public housing program and of
better leveraging information that it already collects. Although it
provided no specific explanation for why it thought our recommendations
would not achieve these objectives, HUD stated that more analysis of
its existing oversight mechanisms and information collected from
housing agencies should be performed in order to evaluate and develop
possible alternatives. We welcome HUD's efforts to reconsider the
mechanisms and data it uses to oversee housing agencies, but disagree
with its statement that our recommendations do not help achieve these
objectives. We believe the recommended actions present a reasonable
first step in leveraging information it already collects and permit HUD
to better focus its limited resources.
Background:
Under the U.S. Housing Act of 1937, as amended, Congress created the
public housing program to provide decent and safe rental housing for
eligible low-income families, the elderly, and persons with
disabilities.[Footnote 3] HUD provides subsidies for operating and
maintaining public housing units through the Operating Fund.[Footnote
4] HUD also provides funds to modernize and develop public housing
units through the Capital Fund.[Footnote 5] Public housing agencies
administer these formula grant programs on HUD's behalf. In using these
funds, the agencies are responsible for ensuring that the housing is
affordable to eligible low-income households. In 1992, Congress
established the Urban Revitalization Demonstration Program, commonly
known as HOPE VI, which provides grants to housing agencies to
rehabilitate or rebuild severely distressed public housing.[Footnote 6]
The Single Audit Act, as amended, requires state and local governments
and nonprofit organizations that expend $500,000 or more in federal
awards in a fiscal year to have either a single audit or a program-
specific audit.[Footnote 7] Under a single audit, the auditor must
report its opinion on the presentation of the entity's financial
statements and schedule of federal expenditures, and on compliance with
applicable laws, regulations, and provisions of contracts or grant
agreements that could have a direct and material effect on the
financial statements and, when applicable, on any major program of the
audited entity.[Footnote 8] The auditor must also report the results of
its review and testing of internal control related to the financial
statements and major programs as well as a schedule of any audit
findings and questioned costs. Public housing agencies subject to the
act must submit audit reports to HUD and to the Federal Audit
Clearinghouse.[Footnote 9] Single audit is a key assurance process used
by HUD in its oversight of public housing agencies. Single auditors are
required by the act to identify and test programs for compliance with
specific program requirements and report identified findings (or the
lack thereof), which can include those of inappropriate use and
mismanagement of funds. HUD's Real Estate Assessment Center (REAC),
which is responsible for reviewing housing agencies' financial data,
began tracking the status of single audit findings in 2007 using the
Monitoring and Planning System (MAPS) Audit Tracking Module. Through
this tracking system, HUD monitors the resolution of audit findings.
HUD maintains an additional system, the Audit Resolution and Corrective
Action Tracking System (ARCATS), to monitor the status of management
and financial findings issued by our or OIG's recommendations.
HUD's PHAS is another key oversight process. While single audits may
identify specific instances of inappropriate use or mismanagement of
public housing funds, PHAS was developed to evaluate the overall
condition of housing agencies and measure performance in major
operational areas of the public housing program. These include
financial condition, management operations, and physical condition of
the housing agencies' public housing programs as well as resident
satisfaction with the programs (see figure 1).[Footnote 10]
Figure 1: Public Housing Assessment System Scoring Subsystem
Components:
[Refer to PDF for image: illustration]
PHAS components:
Financial Assessment Subsystem (FASS) 30 points:
Measures the financial condition of the housing agency to ensure that
it has sufficient financial resources to provide public housing and is
managing those resources effectively.
Management Assessment Subsystem (MASS) 30 points:
Measures a housing agency‘s management operations capabilities by
assessing certain key responsibilities, including site security, work
orders, and other aspects of management operations.
Physical Assessment Subsystem (PASS) 30 points:
Measures the physical condition of each of the housing agency‘s
properties to determine if they are decent, safe, sanitary, and in good
repair.
Resident Assessment Subsystem (RASS) 10 points:
Measures the level of resident satisfaction with the living conditions
of housing provided by the agency.
Source: 24 C.F.R. pt 902, Public Housing Assessment System.
[End of figure]
The Financial Assessment Subsystem (FASS) component score is based on
six financial data analyses that HUD has determined to be key in
evaluating housing agencies' financial condition. These include the
following:
* the current ratio, which measures the housing agency's ability to
cover its short-term obligations;
* the months expendable funds balance ratio, which measures the housing
agency's reserves for unexpected expenses;
* the tenant receivables outstanding, which measures how well the
housing agency manages rent collections;
* the occupancy loss, which measures how well the housing agency
maximizes its revenue by renting out vacant units;
* the expense management, which measures whether the housing agency has
adequate cost controls to manage expenses; and:
* the net income, which measures whether the housing agency is spending
more than it makes.
Housing agencies with scores of less than 60 percent in either the
overall PHAS score (less than 60 points out of a total 100 points) or
in any one of the major subcomponents, including the FASS (less than 18
points out of 30 points), are designated as substandard performers,
also known as troubled.[Footnote 11] For example, points may be
deducted from housing agencies' FASS scores if the six financial
analyses indicate that housing agencies are experiencing overall
financial difficulties that may threaten the stability of the housing
agency. According to HUD officials, although housing agencies'
financial data are usually audited, REAC analysts also review financial
data to ensure the accuracy of information that is used to calculate
the FASS scores. For example, REAC analysts examine specific line items
in the financial data, investigate changes or discrepancies in amounts
reported, and review auditors' notes.
HUD field offices establish mechanisms to identify and correct
deficiencies if a housing agency is designated as a troubled performer
in either the PHAS overall score or the FASS subcomponent. Such
mechanisms may include the development of an improvement plan or a
memorandum of agreement. If technical assistance and sanctions fail to
result in significant improvement within a year, the housing agency is
referred to the HUD Enforcement Center, which may institute proceedings
to place the agency in receivership and remove failed agency
management.[Footnote 12] Receiverships generally result from long-
standing, severe, and persistent management problems that have led to
the deterioration of the public housing stock.
HUD's Primary Oversight Processes Could Be Better Focused to Detect
Housing Agencies at Risk of Inappropriate Uses or Mismanagement of
Public Housing Funds:
Persistent Problems with Audit Quality and Gaps in What Audits Cover
Can Limit HUD's Ability to Detect Misuse or Mismanagement of Public
Housing Funds:
Single audits, HUD's primary tool for overseeing the use of public
housing funds, are intended to, among other things, promote sound
financial management by serving as a key accountability mechanism in
the oversight and monitoring of recipients' use of federal funds.
Single audits provide federal agencies with information on the use of
federal funds, internal control deficiencies, and compliance with
federal program requirements. The Single Audit Act that mandated the
audits does not require the auditors to perform procedures that focus
specifically on all federal programs that housing agencies administer.
Instead, auditors are to select and closely audit "major" programs
administered by the recipient of the funds--typically large or risky
programs--for compliance with specific program requirements, including
the appropriate use of funds. In addition to single audits, OIG selects
various housing agencies to audit as part of its oversight of HUD's
public housing program. HUD's strategic goals for its public housing
program call for the department to resolve issues identified by these
audits and improve its management of internal controls to, among other
things, eliminate fraud, waste, and abuse.
However, both HUD's quality assurance office and a recent study
conducted by PCIE have identified problems with single audits of
housing agencies. OIG also identified problems with single audits after
conducting detailed reviews of housing agency operations as part of its
oversight process. Both OIG's audits and quality assurance reviews by
HUD have, in some cases, resulted in disciplinary action for single
auditors. HUD quality control reviews cover housing agency audits as
well as audits of other entities that receive HUD financial assistance.
According to data from HUD's Quality Assurance Subsystem, 52 of the 247
quality assurance reviews it conducted between 2000 and 2008 resulted
in referrals for firms auditing entities receiving HUD funding.
According to HUD, many of these included public housing agency audits.
Examples of problem public housing agency audits include the following:
* Single audits for the Miami-Dade Housing Authority (MDHA) did not
identify significant instances of inappropriate use and mismanagement
of funds. In 2006, a media investigation provided extensive coverage of
problems with public housing funds at the agency. HUD stated that
MDHA's single audits should have alerted the department to these
problems, but they did not. Instead, HUD stated that it learned about
the allegations of misuse and mismanagement of funds from the Miami
Herald newspaper in 2006. In response to these allegations, HUD ordered
a detailed review and new single audit of the housing agency that found
serious and pervasive financial and management problems, including
deficiencies in financial management, mismanagement of development
funds, and several apparent conflicts of interest. MDHA went into
receivership in 2007, with HUD taking possession and control of all of
MDHA's activities, including public housing.
* In 2007, OIG found that the Dallas Housing Authority had inaccurate,
unreliable, and altered records. Further, OIG noted that the firm
conducting the 2006 single audit had failed to meet professional
auditing standards. State authorities took disciplinary action against
the auditing firm in 2007. According to HUD, the Dallas Housing
Authority engaged this firm after it had removed an earlier auditing
firm that had identified problems with the housing agencies' financial
management.
* Also in June 2007, PCIE issued its Report on National Single Audit
Sampling Project, which concluded that there were problems with audit
quality that needed to be addressed and made recommendations.[Footnote
13] Specifically, PCIE reviewed a nationwide sample of 208 out of more
than 38,000 single audits performed on various grant recipients that
were submitted for the period between April 1, 2003, and March 31,
2004. According to the HUD OIG, the PCIE sample included single audits
of 11 housing agencies, of which 6 were determined to be unacceptable,
1 was found to have limited reliability, and 4 were determined to be
acceptable, but with deficiencies.
In a 2007 GAO testimony at a congressional hearing on the PCIE study,
we noted that problems with the quality of single audits were
unacceptable and that we were concerned that audits were not being
conducted in accordance with professional standards and
requirements.[Footnote 14] We also noted that such audits could mislead
users of audit reports, causing them to incorrectly conclude that
agencies were in compliance with program requirements or did not have
weaknesses in internal controls when in fact such problems might exist
but had gone undetected. However, we also noted continued support for
single audits as a key oversight mechanism over federal awards.
Compounding the problems with the quality of audits is the fact that
many housing agencies' public housing programs may not have to undergo
the detailed major program compliance testing that could potentially
uncover inappropriate use and mismanagement of public housing funds.
Only entities expending $500,000 or more in federal funding annually
are required to receive single audits that assess compliance with
specific program requirements and associated internal controls that
have a direct and material effect on each major program. Furthermore,
even when housing agencies receive single audits, not all public
housing programs will be designated as major programs by independent
public accountants conducting the single audit. For example, although
about 76 percent of operating fund dollars were designated by the
housing agencies' independent auditors as major in 2006, less than a
third of the housing agencies submitting approved financial data to HUD
for that year underwent a single audit and had their operating funds
audited as major programs. Without compensating monitoring tools, gaps
in coverage at many housing agencies in any one year could allow
emerging problems to go undetected and unreported by single audits in a
timely manner.
HUD has attempted to improve the quality of these audits but has faced
significant challenges. As noted above, HUD performs quality assurance
reviews of the independent public auditors who perform the audits. In
some cases, these quality assurance reviews have led to investigations
and actions against substandard auditors. HUD officials said that the
agency could pursue debarment or suspension of poorly performing
auditors but noted that such remedies were costly and time-consuming.
Further, efforts to improve audit quality will not address gaps in
coverage that leave some housing agencies and programs unaudited for
more than a year. In light of these limitations, fully leveraging other
useful information becomes key to ensuring more consistent monitoring
of public housing funds.
HUD Does Not Systematically Summarize the Results of Audits to
Understand Problems and Address Vulnerabilities in Its Oversight
Processes:
Although the quality and coverage of single audits can be problematic,
the single audit continues to be an important oversight mechanism. Yet,
HUD has not fully leveraged how it uses the results of audits to fully
understand emerging or persistent problems at housing agencies.
Understanding commonly occurring audit findings could be useful for
identifying housing agencies that are at greater risk of inappropriate
use or mismanagement of public housing funds and assessing
vulnerabilities in HUD's oversight processes. In 2002, we reported that
summarizing information about the results of single audits and
identifying commonly occurring issues could be valuable in helping
management evaluate agency oversight, monitor activities, and identify
problem areas.[Footnote 15] Further, the Domestic Working Group's Guide
to Opportunities for Improving Grant Accountability states that
agencies can summarize the results of internal and external audits for
program managers to help identify problems with grantees' financial
management and program operations.[Footnote 16] For example, officials
from one federal grant program within the Department of Transportation
stated to us that they had taken such an approach to using audit data
by summarizing the results of audits to identify recurring issues and
direct their oversight policies. These officials stated that their
analysis had identified procurement-related problems as a recurring
finding area, which resulted in staff conducting grantee workshops and
technical assistance on federal procurement requirements.
HUD does track the resolution of individual audit findings for each
housing agency. Specifically, HUD uses its ARCATS to track the
resolution of the HUD Inspector General's audit findings. In addition,
HUD recently developed MAPS to track the resolution of single audit
findings. However, on the basis of our discussions with HUD officials,
HUD has not used either ARCATS or MAPS to summarize and systematically
evaluate the results of audits to understand problems that may commonly
occur at multiple housing agencies, identify programwide problems of
inappropriate use and mismanagement of public housing funds, detect
emerging issues, or address possible vulnerabilities in its oversight
processes. HUD's systems contain data that categorize the findings of
single audits in a manner that would allow the agency to identify
commonly occurring problems across housing agencies. Yet, on the basis
of our discussions with HUD, the department has not used these data for
this purpose.
We conducted an analysis of a sample of 81 OIG and 56 single audit
reports of housing agencies from 2002 through 2007 and categorized the
526 audit findings we identified into major categories of inappropriate
use and mismanagement of public housing funds that we developed.
Examples of these categories and the number of findings in our sample
included: accounting issues, including internal control and
documentation findings (150); inappropriate transfer of operating funds
to other HUD programs and non-HUD entities, including affiliated
organizations that were not used for public housing purposes (98); and
other management issues (41). We also noted that for 14 housing
agencies where audits identified commonly occurring problems with
internal control, documentation, and other management issues, 27 of the
findings reported involved management of cash resources. These findings
included inadequate separation of duties, fraudulent check writing, and
theft of cash.
Such a systematic evaluation of audit results could be useful for
program managers, helping them to understand commonly occurring
problems, identify and monitor emerging issues, and address limitations
in HUD's overall monitoring and oversight processes. Such information
could also be useful for HUD field offices, housing agency auditors,
and the housing agencies themselves by alerting them to persistent or
emerging problems of potential inappropriate use and mismanagement of
public housing funds. HUD public housing managers in headquarters and
field offices stated that summarized results of audits would aid in
helping them carry out their oversight activities. Not effectively
using readily available information on the results of audits will
continue to hamper these managers' efforts to monitor housing agencies
for misuse and mismanagement of funds.
PHAS and HUD's Internal Analyses of Financial Data Could Be Better
Focused to Identify Housing Agencies at Risk for Misuse and
Mismanagement of Public Housing Funds:
PHAS and HUD's internal analyses of data from housing agencies'
financial data could be better focused to identify housing agencies
that are at greater risk of potential inappropriate uses or
mismanagement of public housing funds. As a result, these oversight
processes may not alert HUD to potential problems and allow for timely
monitoring and additional oversight activities that may be warranted.
PHAS primarily assesses data on management operations and the financial
health and physical condition of the housing agencies' public housing
programs and alerts HUD to potentially troubled agencies. For example,
as noted earlier, PHAS was developed to alert HUD to liquidity problems
at housing agencies. However, PHAS was never intended to identify
individual instances of inappropriate use of public housing funds, and
some potential indicators of liquidity problems may not be detected by
PHAS. As a result, housing agencies have continued to receive passing
PHAS scores even when their financial data may indicate that the
housing agency is at greater risk of inappropriately using funds or
experiencing serious financial difficulties. HUD has stated that it
would primarily rely on single audits to identify such problems.
HUD's policies state that the agency conducts analyses of financial
data to help improve public housing agencies' financial health and
provide guidance in identifying possible fraud, waste, and abuse.
However, HUD told us that it primarily used its analysis of housing
agencies' financial statements to ensure the mathematical
reasonableness and completeness of the financial data used to calculate
housing agencies' PHAS scores. However, we analyzed housing agencies'
financial data and found that many of these agencies showed signs that
they may be at greater risk of inappropriately using or mismanaging
public housing funds, even though the agencies in question received
passing PHAS scores.
Potential Inappropriate Use--Improper Advances of Low-Income Public
Housing Operating Funds:
Our analysis of data from housing agencies' financial statements
indicates that many housing agencies receive passing PHAS scores even
though an analysis of their financial data indicates that these
agencies are at greater risk of inappropriately advancing their public
housing program's operating funds to other programs or affiliated
entities that may not use the funds for public housing purposes. Both
we and OIG found that financial data could be used to identify housing
agencies that were potentially at greater risk of inappropriately
advancing funds in this manner. Specifically, using financial data, we
identified 837 housing agencies that reported balances in their public
housing program of over $100,000 as due from other programs--that is,
operating funds that were advanced or loaned to other programs or
entities and were potentially not used for public housing purposes--
between 2002 and 2006. The prior HUD OIG work noted that housing
agencies showing balances in excess of $100,000 as due from other
programs in their public housing program often inappropriately advanced
or loaned public housing program funds to other programs or affiliated
entities--such as nonprofit organizations--without these funds being
repaid to the public housing program. For example, OIG noted instances
where public housing funds were advanced inappropriately and used for
private housing development. In response to these OIG audits, HUD
reported that it had taken steps to resolve audit recommendations and
had made referrals for administrative action to be taken against those
housing agencies. HUD further recognized that housing agencies showing
large amounts in their due from other funds accounts may warrant
greater scrutiny and analyses of transactions.
Our analysis of housing agencies' due from other program accounts shows
that from fiscal years 2002 through 2006, about 15 to 17 percent of
housing agencies exhibited this indicator of possible inappropriate
advances ($100,000 or more as due from other programs). (See figure 2.)
Figure 2: Percentage of Housing Agencies with Potentially Improper
Advances of Operating Funds (Balances Due from Other Programs in Excess
of $100,000), Fiscal Years 2002-2006:
[Refer to PDF for image: vertical bar graph]
Year: 2002;
Percentage: 16.73.
Year: 2003;
Percentage: 17.26.
Year: 2004;
Percentage: 17.16.
Year: 2005;
Percentage: 15.51.
Year: 2006;
Percentage: 14.83.
Source: GAO analysis of housing agency financial data schedules.
[End of figure]
While these housing agencies' financial data were showing that these
agencies were at greater risk of inappropriately advancing operating
funds, their PHAS scores may not have provided HUD with any indication
of this potential risk. PHAS assesses the overall management operations
and the financial and physical condition of the housing agencies'
public housing programs, but it was not developed to identify potential
inappropriate use of funds, such as inappropriate advances of operating
funds. Our analysis found that about 80 percent of the housing agencies
that reported balances in excess of $100,000 in the operating fund's
due from other program from fiscal years 2002 through 2006 received
passing scores in PHAS (see fig. 3). Thus, the PHAS score by itself
would not identify or trigger any further oversight of housing agencies
that may be at risk of potential improper advancement of funds.
Figure 3: PHAS Scores for Housing Agencies with Potential Improper
Operating Fund Advances (Balances Due from Other Programs in Excess of
$100,000), Fiscal Years 2002-2006:
[Refer to PDF for image: pie-chart]
Housing agencies with passing PHAS score: 79.9%;
Housing agencies with substandard PHAS score: 19.7%;
Housing agencies with no PHAS score: 0.4%.
Source: GAO analysis of housing agency financial data schedules and HUD
data.
Note: Some housing agencies are not required to submit PHAS scores for
various reasons. For example, two housing agencies were not required to
submit PHAS scores because they are in the Moving to Work program.
[End of figure]
HUD officials stated that they would continue to rely on single audits
to identify improper advances of this nature despite concerns about the
quality of single audits and gaps in the number of housing agencies and
programs covered and that they do not conduct specific financial
analyses to identify housing agencies at risk of inappropriate advances
of their operating funds. However, HUD does perform analyses of
financial data to help it identify housing agencies that are at risk of
improper advances for a HUD rental housing program--the Housing Choice
Voucher program.[Footnote 17] Specifically, HUD conducts an assessment
of housing agencies' financial data to identify housing agencies
reporting transfers of voucher program dollars that warrant additional
oversight. Analyzing operating fund financial data as it has with the
Housing Choice Voucher program illustrates how the department could
leverage opportunities to identify and monitor housing agencies at
greater risk of inappropriate advances of public housing funds.
Potential Mismanagement of Funds--Poor Cash Management:
Our analysis also indicated that some housing agencies showed signs
that they are at greater risk of mismanaging public housing funds. For
example, we found that some housing agencies reported check overdrafts
in their financial data. Our analysis of housing agencies' financial
data for fiscal years 2002 through 2006 showed 200 housing agencies
reporting average bank overdrafts of $25,000 or more, and 10 housing
agencies reporting average bank overdrafts of more than $1 million. The
vast majority of housing agencies do not show this indicator of
potential funds mismanagement. In fact, over 92 percent of all housing
agencies reported no check overdrafts during this period. According to
HUD's OIG, writing checks in excess of funds available in a housing
agency's bank account is of concern and could indicate serious cash and
financial management problems or indicate that the housing agency is
prone to potential fraud. MDHA provides an example of how check
overdrafts could have been used as an indicator of serious liquidity
problems. Specifically, HUD audits noted that MDHA was consistently
holding checks in a safe after it had written them and reported the
millions of dollars in these checks as bank overdrafts in the housing
agency's financial data. HUD officials overseeing the receivership of
MDHA stated that the housing agency was taking this action because it
did not have the funds available to meet its financial obligations.
MDHA's single audits for this period were later determined to be
substandard, in part because they did not identify an accounting
misclassification of cash that may have masked the agency's liquidity
problems.
HUD officials stated that housing agencies' PHAS and FASS scores were
used to alert the agency to potential issues with finances and
liquidity. However, we found that housing agencies' PHAS and FASS
scores did not reflect the large bank overdrafts that we identified. Of
the 10 housing agencies reporting bank overdrafts in excess of $1
million, 7 (including MDHA) received passing PHAS scores. Only 1 had a
PHAS score indicating that the agency was troubled. Further, MDHA
received a passing FASS score for 3 of 5 years included in our
analysis. The remaining 2 agencies were exempted from reporting PHAS
scores because of their participation under the Moving to Work
program.[Footnote 18] As shown in figure 4, when we looked at the 200
housing agencies reporting an average bank overdraft of $25,000 or more
from 2002 through 2006, we found that nearly 75 percent of these
housing agencies received passing PHAS and FASS scores.
Figure 4: PHAS Scores for Housing Agencies with Potential Funds
Mismanagement (Average Bank Overdrafts in Excess of $25,000), Fiscal
Years 2002-2006:
[Refer to PDF for image: pie-chart]
Housing agencies with passing PHAS score: 74.5%;
Housing agencies with substandard PHAS score: 24.5%;
Housing agencies with no PHAS score: 1.0%.
Source: GAO analysis of housing agency financial data schedules and HUD
data.
[End of figure]
HUD officials stated that they were concerned about housing agencies
with substantial bank overdrafts but added that overdrafts were not
flagged for further monitoring because PHAS and single audits were
expected to detect such poor financial management. However, as we have
seen, single audits, PHAS, and the department's current approach to
analyzing financial data do not always detect or alert HUD to housing
agencies at greater risk of potential inappropriate use or
mismanagement of public housing funds. This shortcoming underscores the
importance of leveraging the financial data HUD collects to focus on
housing agencies at risk of these potential problems. For example, HUD
could use financial indicators to identify housing agencies that are at
greater risk of such problems. HUD could then use the information to
alert its field offices, auditors, and the housing agencies themselves
to potential problems. Developing such indicators of potential
inappropriate use and mismanagement could also be a particularly useful
compensating mechanism for monitoring housing agencies that are not
subject to single audits and a valuable monitoring tool to mitigate the
limitations of PHAS. Not fully leveraging the information it already
has limits HUD's ability to identify potential waste and abuse of its
resources.
Conclusions:
HUD relies on single audits to identify potential misuse and
mismanagement of public housing funds, and many single audits as well
as those of OIG have identified such problems. However, concerns about
the quality of single audits and gaps in the coverage of these audits
have limited HUD's confidence that single audits will consistently
identify inappropriate use and mismanagement of public housing funds at
every housing agency. Although HUD has faced difficulty in making
improvements to the quality of audits and is aware that many housing
agencies' public housing programs may not receive annual single audit
coverage, it has not adapted the way it uses information it collects to
develop mechanisms to mitigate these limitations. Specifically, HUD
does not systematically summarize and analyze the types and causes of
misuse and mismanagement that single and OIG audits do successfully
identify. Understanding the attributes of these commonly occurring
problems that single and OIG audits have found could be useful to
public housing program managers in identifying emerging issues and
evaluating HUD's overall monitoring and oversight processes. Promising
practices identified by the Domestic Working Group's Guide to
Opportunities for Improving Grant Accountability call for such efforts.
In fact, our review of over 130 audits conducted between 2002 and 2007
showed almost 100 findings related to inappropriate advancement of
public housing operating funds to non-HUD programs or entities.
Summarized results could also be useful to HUD's field offices,
auditors, and the housing agencies themselves, helping them understand
emerging and persistent issues in HUD's national portfolio of housing
agencies and carry out their responsibilities in monitoring public
housing programs.
HUD currently uses PHAS to monitor housing agencies, but this system
has not always identified housing agencies at risk of problems such as
cash management issues and was not intended to identify inappropriate
use of public housing funds. Although HUD has developed automated
checks of housing agencies' financial information to help ensure its
completeness and accuracy for PHAS, the department has not used these
checks as a mechanism to identify housing agencies at greater risk for
potential misuse and mismanagement of public housing funds. HUD itself
uses such checks to identify potential inappropriate use of its Housing
Choice Voucher Program funds. Fully utilizing data HUD collects--for
example, by developing financial indicators to help identify housing
agencies at greater risk of inappropriately using or mismanaging public
housing funds--would help in developing tools to compensate for the
limitations of key oversight processes.
Recommendations for Executive Action:
In order to strengthen its oversight of housing agencies administering
the public housing program and better leverage information that it
already collects, we recommend that the Secretary of the Department of
Housing and Urban Development:
* Regularly summarize and systematically evaluate the results of OIG
and single audits of public housing agencies to allow program managers
to identify and understand problems of potential inappropriate use and
mismanagement of public housing funds, identify emerging issues, and
evaluate overall monitoring and oversight processes. Summarized results
of audits should be disseminated to field offices, housing agencies,
and their auditors to help make them aware of emerging or persistent
problems and assist them in monitoring and administering HUD's public
housing programs.
* Develop mechanisms--such as financial indicators--to identify housing
agencies that are at greater risk of inappropriately using or
mismanaging public housing funds. Such mechanisms may be developed
based on the department's evaluation of commonly occurring and emerging
issues identified in OIG and single audits of housing agencies and
developed by leveraging financial information that the department
currently collects. Once such indicators are developed, the department
should use them as part of its ongoing monitoring and review of housing
agencies' use of public housing funds.
Agency Comments and Our Evaluation:
In written comments from the General Deputy Assistant Secretary for
Public and Indian Housing (see appendix II), HUD stated that the draft
report contains useful information, but that the agency did not believe
that our recommendations would achieve the objectives of strengthening
oversight of housing agencies that administer the public housing
program and of better leveraging information that it already collects.
Although it provided no specific explanation for why it thought our
recommendations would not achieve its objectives, HUD stated that more
analysis of its existing oversight mechanisms and information collected
from housing agencies should be performed in order to evaluate and
develop possible alternatives and indicated that it would involve
Public and Indian Housing parties in developing a more creative and
comprehensive approach to addressing the issues raised in our report.
We welcome efforts by HUD to reconsider the mechanisms and data it uses
to oversee housing agencies and to identify opportunities for improving
its oversight. However, we disagree with HUD's statement that our
recommendations do not help achieve the objectives of strengthening its
oversight and better leveraging the audit and financial information it
already has. We believe the recommended actions present a reasonable
first step in leveraging its existing information and permit HUD to
better focus its limited resources. In fact, as noted in the report,
the mechanisms that we are recommending for identifying potential
problems to identify housing agencies that are at risk of inappropriate
use of funds are already being used by another key HUD rental
assistance program and by the HUD OIG. Moreover, HUD has in place
systems that capture the information needed for such analysis. As HUD
reevaluates its oversight mechanisms and seeks the input of its new
Assistant Secretary, we believe that thinking about ways of leveraging
the information it receives from single audits and financial data will
be helpful in identifying emerging issues related to inappropriate use
and mismanagement of funds and in providing the oversight necessary to
address these issues.
We will send copies of this report to the Secretary of the Department
of Housing and Urban Development and other interested parties. In
addition, the report will be available at no charge on our Web site at
[hyperlink, http://www.gao.gov]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report.
If you or your staff has any questions about this report, please
contact me at (202) 512-8678 or sciremj@gao.gov. GAO contact
information and staff acknowledgments are listed in appendix III.
Signed by:
Mathew J. Scirč:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objective, Scope, and Methodology:
This report evaluates the Department of Housing and Urban Development's
(HUD) oversight of public housing agencies' use of federal funds to
operate, modernize, and develop public housing units through the
Operating Fund, Capital Fund, and HOPE VI programs--the three main
sources of funding for the public housing program. In 2008, the
Operating Fund, Capital Fund, and HOPE VI programs provided
approximately $6.7 billion to housing agencies for capital asset
management. The objective of this report was to examine the oversight
processes HUD uses to understand and detect instances of inappropriate
use and mismanagement of public housing funds.
We reviewed applicable federal laws and regulations to describe
permissible uses for the public housing funds within the scope of this
report--specifically, funds available under the Operating Fund, Capital
Fund, and HOPE VI programs. To describe HUD processes to ensure that
housing agencies use public housing funds for statutorily allowable
uses, we reviewed pertinent federal laws, agency notices, and program
guides, and other job aids or documents. We interviewed program
officials in the Office of Public and Indian Housing, including
administrators from the Offices of the Deputy Secretary for Field
Operations and of the Deputy Secretary for Public Housing Investments
in Washington, D.C. We obtained information on the Public Housing
Assessment System (PHAS) and financial management assessment procedures
from officials responsible for this system at HUD's Real Estate
Assessment Center (REAC). In addition, we reviewed key documents that
describe the annual single audit process as applicable to housing
agencies that receive federal funds, such as the Office of Management
and Budget's (OMB) Circular A-133: Audits of States, Local Governments,
and Non-Profit Organizations and HUD program documents.
We also interviewed officials from four HUD field offices and obtained
additional documentary and testimonial information to summarize the
oversight processes. We selected field offices for review. We selected
the HUD field office in Miami-Dade because it oversaw the Miami-Dade
Housing Authority, which had been the most recent housing agency to go
into receivership pursuant to a settlement agreement resolving
allegations of financial mismanagement. We also met with officials from
three other HUD field offices: Baltimore, San Francisco, and
Washington, D.C. Within their portfolios, these field offices all have
housing agencies with active Operating Fund, Capital Fund, and HOPE VI
programs, with a range of housing agencies of different sizes, and in
proximity to cities near GAO offices. Although the results of our
discussion with these field offices may not be generalized across all
field offices, our discussions provided important context on HUD's
implementation of its oversight processes and corroboration of
information we collected. We also obtained information on HUD's
oversight procedures with staff from selected public housing agencies
in each of the HUD field office locations: the Housing Authority of the
City of Alameda, Housing Authority of the County of Monterey, Richmond
Housing Authority, and San Francisco Housing Authority in California;
the Miami-Dade Housing Authority and Housing Authority of the City of
Fort Lauderdale in Florida; the District of Columbia Housing Authority;
and the Housing Authority of Baltimore City and Prince George's County
Housing Authority in Maryland.
To understand commonly occurring reported findings of inappropriate use
or mismanagement of public housing funds by housing agencies, we
conducted a content analysis of findings in HUD's Office of Inspector
General (OIG) audit and single audit reports of housing agencies.
Through this analysis we developed a number of categories and
subcategories of common findings reported in these audits, including
instances of noncompliance and internal control deficiencies. We took
steps to ensure that the categories and subcategories we developed were
consistently applied across both OIG and single audit reports, which
included independent verification that the established categories and
subcategories in the OIG reports were applicable to the findings we
analyzed in the single audit reports. To select OIG audits for our
analysis, we obtained a list of all audit reports with findings related
to the three public housing funds (Operating Fund, Capital Fund, and
HOPE VI) from 2002 through 2007. This list contained 144 audit reports.
We also determine whether these audits met the following additional
criteria for inclusion in our content analysis sample: (1) The audit
findings were related to inappropriate use of funds and mismanagement
issues, and (2) the audits were initiated by OIG or entities other than
HUD program officials. We identified 81 OIG audits that met these
criteria and constituted our final sample.
Single audit reports for our analysis were selected from audits
conducted from audit years 2002 through 2005. This period differs from
one for our analysis of OIG audit report because single audit reports
are not due to HUD or to the Federal Audit Clearinghouse--the source
from which we drew our sample--until 9 months after a housing agency's
fiscal year end. As a result, some housing agencies had not yet
submitted their 2006 or 2007 single audit reports by the time we
performed our analysis. Using HUD financial data on housing agencies,
we created a list of 129 single audit reports with findings related to
the three public housing funds from audit years 2002 through 2005. We
ensured that these single audit and OIG reports related to financial
management issues within the scope of our review. Our final sample of
56 reports included 8 reports in 2002, 10 in 2003, 18 in 2004, and 20
in 2005.
To identify potential cases of housing agencies at greater risk of
inappropriately using or mismanaging funds across the HUD housing
agency portfolio, we reviewed financial information from REAC's
financial data schedule (FDS) database for approximately 3,300 housing
agencies. We reviewed HUD's Financial Data Schedule Line Definition and
Crosswalk Guide on the data fields available in this system and
analyzed certain data line items. Specifically, we identified those FDS
line items that could be used to assess potential areas of
inappropriate use and financial mismanagement. In particular, we looked
at FDS information on advances of public housing funds as a potential
indicator of improper use and on cash management (bank overdrafts) as a
potential indicator of financial mismanagement. At the time that we
obtained these data from HUD, fiscal year 2006 was the last year for
which a full year of financial data schedules was available.
We assessed the reliability of the data by (1) reviewing existing
information about the systems and the data, (2) interviewing agency
officials knowledgeable about the data, and (3) examining data elements
used in our work by conducting electronic edit checks and comparing
actual with anticipated values. For the FDS data, we analyzed the most
current available data from the system for the years within the scope
of our review. We obtained explanations on inconsistencies we found in
the data from agency officials. We determined that the data were
sufficiently reliable for the purposes of this report.
Analysis of potential inappropriate use of funds: As a potential
indicator of inappropriate use, such as improper advances of funds, we
analyzed balances of funds due from other program (FDS line item 144)
for all housing agencies' operating funds from fiscal years 2002
through 2006. We selected this line item because HUD's OIG has
identified housing agencies that have inappropriately advanced public
housing operating funds by analyzing FDS for housing agencies that
reported balances in excess of $100,000 on line item 144 for the
operating fund. OIG found that housing agencies often used the public
housing general fund bank account as the payment account for various
other activities of the housing agency. When these other activities did
not repay the operating fund account, a balance was reported on line
144 of the FDS. When housing agencies did this for activities requiring
substantial amounts of cash, the balance in line 144 tended to grow,
indicating an inappropriate use of funds. Similarly, we identified
housing agencies showing amounts due from other program balances in
excess of $100,000 for its operating fund as an indicator of potential
inappropriate advances of funds.
Analysis of potential mismanagement of funds: To identify housing
agencies that may have fund mismanagement problems, such as poor cash
management, we analyzed amounts reported as bank overdrafts in FDS
(line item 311). This line item on FDS represents checks written in
excess of funds available in bank accounts. In identifying this line
item as an indicator of potential fund mismanagement, we interviewed
HUD officials to determine if there were sound or legitimate
operational reasons for a housing agency writing checks in excess of
funds available in a housing agency's bank account. HUD officials could
not provide such reasons. Further, OIG agreed that using bank
overdrafts as an indicator of potential funds mismanagement was
reasonable.
We conducted this performance audit from January 2007 through March
2009 in Alameda, Monterey, Richmond, and San Francisco, California;
Miami and Fort Lauderdale, Florida; Baltimore and Prince George's
County, Maryland; and Washington, D.C. in accordance with generally
accepted government auditing standards. Those standards require that we
plan and perform the audit to obtain sufficient, appropriate evidence
to provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on the audit
objectives.
[End of section]
Appendix II: Comments from the U.S. Department of Housing and Urban
Development:
U.S. Department Of Housing And Urban Development:
Office of Public and Indian Housing:
Washington, DC 20410-5000:
[hyperlink, http://www.hud.gov]
[hyperlink, http://espanol.hud.gov]
May 27, 2009:
Mr. Mathew J. Scirč:
Director:
Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Scirč:
The Office of Public and Indian Housing has reviewed the draft report
on HUD's Oversight of Housing Agencies Should Focus More on
Inappropriate Use of Program Funds (GAO-09-33). Enclosed are my written
comments concerning your report. As noted in the enclosed comments, I
will be discussing your recommendations with the new Assistant
Secretary for Public and Indian Housing when she arrives.
Please contact Michael Mangahas at (202) 402-6726, if you have any
questions.
Sincerely,
Signed by:
Paula O. Blunt:
General Deputy Assistant Secretary for Public and Indian Housing:
Enclosure:
[End of letter]
Public and Indian Housing Comments on HUD's Oversight of Housing
Agencies Should Focus More on Inappropriate Use of Program Funds (GAO-
09-33):
Overall PIH Response to GAO Draft Review Report:
Your Report contains useful information and provided PIH with
recommendations on how to strengthen oversight of housing agencies
(PHAs) administering the public housing program and to better leverage
information that it already collects. However, PIH does not
believe that the recommendations provided will accomplish these
objectives.
It is anticipated that the new Assistant Secretary for PIH will be
arriving soon. PIH would like the opportunity to brief the new
Assistant Secretary on the GAO report and allow her the opportunity to
decide how she wants to approach the issues that have been raised.
Recommendations for Executive Action:
1. Regularly summarize and systematically evaluate the results of OIG
and single audits of public housing agencies to allow program managers
to identify and understand problems of potential inappropriate use and
mismanagement of public housing funds, identify emerging issues, and
evaluate overall monitoring and oversight processes. Summarized results
of audits should be disseminated to field offices, housing agencies,
and their auditors to help make them aware of emerging or persistent
problems and assist them in monitoring and administering HUD's public
housing programs.
2. Develop mechanism-such as financial indicators-to identify housing
agencies that are at greater risk of inappropriately using or
mismanaging public housing funds. Such mechanisms may be developed
based on the department's evaluation of commonly occurring and emerging
issues identified in OIG and single audits of housing agencies and
developed by leveraging financial information that the department
currently collects. Once such indicators are developed, the department
should use them as part of its ongoing monitoring and review of housing
agencies' use of public housing funds.
PIH response:
PIH believes that more analysis of the existing oversight mechanisms
and information collected from PHAs should be done in order to evaluate
and develop possible alternatives. We need additional time to involve
other PIH parties in developing a more creative and comprehensive
approach in resolving these issues.
As previously noted, the draft report will be discussed with the new
Assisted Secretary once she reports to HUD.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Mathew J. Scirč, (202) 512-8678 or sciremj@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Daniel Garcia-Diaz (Assistant
Director), Emily Chalmers, May Lee, John Lord, Marc Molino, Jasminee
Persaud, Carl Ramirez, Linda Rego, Suneeti Shah, and Julie Trinder made
key contributions to this report.
[End of section]
Footnotes:
[1] The Single Audit Act of 1984, as amended, Pub. L. No. 98-502, 98
Stat. 2327, codified at 31 U.S.C. § 7501-7507, requires state and local
governments and nonprofit organizations that expend $500,000 or more in
federal awards in a fiscal year to have either a single audit or a
program-specific audit.
[2] PCIE had been established under an Executive Order, but the PCIE is
being terminated and replaced with the Council of the Inspectors
General on Integrity and Efficiency, as provided by the Inspector
General Reform Act of 2008. Pub. L. No. 110-409, 122 Stat. 4302.
Currently, PCIE is known as the Council of the Inspectors General on
Integrity and Efficiency (CIGIE).
[3] Ch. 896, 50 Stat. 888.
[4] 42 U.S.C. § 1437g(e)(1).
[5] 42 U.S.C. § 1437g(d)(1).
[6] 42 U.S.C. § 1437v.
[7] 31 U.S.C. § 7502(a). See Office of Management and Budget (OMB)
Circular A-133. The single audit threshold was raised from $300,000 to
$500,000 for fiscal years ending after December 31, 2003. 68 Fed. Reg.
38401 (June 27, 2003). Election of program-specific audits can occur
when an auditee expends federal awards under only one federal program
(other than for research and development) and when federal laws,
regulations, or grant agreements do not require a financial statement
audit of the auditee. Under these circumstances, the auditee may elect
to have a program-specific audit, which is limited to the auditee's
finances, controls, and compliance under the program.
[8] OMB prescribes guidance for determining which programs are major
for the audited entity and includes criteria such as the amount of
federal awards expended by the entity and other risk factors. OMB also
publishes a document called the Compliance Supplement that summarizes
the laws, regulations, and other program requirements that generally
apply to all federal programs and some that apply specifically to
public housing and other federal programs. We did not review the
adequacy or completeness of the compliance requirements for public
housing programs identified by OMB in the Compliance Supplement.
[9] The Federal Audit Clearinghouse single audit database was
established as a result of the Single Audit Act Amendments of 1996
(Pub. L. No. 104-156, 110 Stat. 1396) and contains summary information
on the auditor, the recipient and its federal programs, and the results
of audits.
[10] There are special circumstances for which housing agencies may opt
out of some PHAS reporting requirements. Standard/high-performing
housing agencies that have fewer than 250 units may skip some
components of PHAS, except the financial evaluation, every other year.
Housing agencies affected by a disaster can obtain a waiver from HUD to
exempt them from PHAS reporting. Also, some of the housing agencies
designated by HUD as part of the Moving to Work program, a
demonstration program authorized by Congress that provides certain
housing agencies greater flexibility in financial and program
management, may be exempted, depending on their particular arrangements
with HUD.
[11] For the purposes of this report, GAO considered a PHAS score to be
passing for any housing agency with an overall PHAS composite score
that was not less than 60 percent and/or with a FASS score that was not
less than 60 percent.
[12] When troubled housing agencies with 1,250 or more units cannot
improve their overall PHAS scores to 60 or their subcomponent scores to
18 within 2 years, the Quality Housing and Work Responsibility Act of
1998 (Pub. L. No. 105-276, title V, 112 Stat. 2518) directs HUD to take
action against them, including appointing a receiver. 42 U.S.C. §
1437d(j)(3)(B)(III).
[13] See PCIE, Report on National Single Audit Sampling Project, June
2007.
[14] GAO, Single Audit Quality: Actions Needed to Address Persistent
Audit Quality Problems, [hyperlink,
http://www.gao.gov/products/GAO-08-213T] (Washington, D.C.: Oct. 25,
2007).
[15] GAO, Single Audit: Actions Needed to Ensure That Findings Are
Corrected, [hyperlink, http://www.gao.gov/products/GAO-02-705]
(Washington, D.C.: June 26, 2002).
[16] The guide provides information for government agencies, identifies
areas for potential improvement in grant oversight, and highlights
specific examples of promising practices that federal agencies have
implemented, although it does not evaluate the effectiveness of the
practices. For example, the guide discusses using internal and external
audits to identify at-risk grantees and summarizing audit results to
support future management decisions. Formed by GAO in 2001, the
Domestic Working Group is an intergovernmental group made up of 19
federal, state, and local audit organizations that was tasked by the
Comptroller General of the United States with suggesting ways of
improving grant accountability.
[17] Housing choice vouchers are administered locally by public housing
agencies. Housing agencies receive funds from HUD to administer the
voucher program. A family that is issued a housing voucher is
responsible for finding a suitable housing unit of the family's choice
where the owner agrees to rent under the program. See 42 U.S.C. §
1437f(o).
[18] The Moving to Work program offers housing authorities the
opportunity to design and test innovative, locally designed housing and
self-sufficiency strategies for low-income families by allowing
exemptions from existing public housing and tenant-based Housing Choice
Voucher rules and permitting housing agencies to combine operating,
capital, and tenant-based assistance funds into a single agencywide
funding source, as approved by HUD. Pub. L. No.104-134, 110 Stat.
1321(1996).
[End of section]
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