Financial Management Accountability

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Federal Managers' Financial Integrity Act Reporting

The Department of Housing and Urban Development has evaluated its systems of management controls for the Fiscal Year ending September 30, 1996, as required by the Federal Managers' Financial Integrity Act (FMFIA) of 1982. Based upon senior managements' assessments, reports of independent auditors and other sources, the Department can provide reasonable assurance that its structure of management controls achieve the requirements of FMFIA with the exception of the material weaknesses and nonconformances identified and discussed below. As part of this evaluation, the Department recognizes the deficiencies with its information and financial management systems. HUD's management remains committed to improving these systems and bringing them into full compliance with the requirements of FMFIA.

• Material weaknesses

  The Department began FY 1996 with the following nine open material weaknesses, of which four were certified as corrected by the accountable managers during the Fiscal Year.

  Material weaknesses carried over from FY 1995
  First reported	Material weakness	FY 96 Status
  1993	Title II Prepayment and Preservation Program	Completed
  1993	Multifamily Resource & Asset Management Strategy	Open
  1993	Sec. 8 Bond Refunding	Open
  1993	Single Family Resource & Asset Management Strategy	Open
  1993	Management & Control of Staff Resources	Open
  1991	Community Development Block	Completed
  1989	Grant Entitlements Sec. 236 Excess Rental Income	Completed
  1989	Sec. 235 Accounting System	Completed
  1983	Sec. 8 Subsidy Payment Process	Open

  During FY 1996, the Department continued to focus on improving management's accountability through identifying and correcting the Department's most serious problems. This included the Secretary strongly encouraging managers to recognize significant material weaknesses identified through the financial audit process as FMFIA defined material weaknesses.

  As a result, four newly declared FMFIA material weaknesses were identified during the fiscal year. At the end of FY 1996, there were no significant differences between material weaknesses identified by the FY 1996 financial statement audit process and the FMFIA process.

  Material Weaknesses Declared in FY 1996
  Material Weakness	FY 96 Status
  Monitoring of Insured Morgages & Multifamily Projects	Open
  Secretary-Held Multifamily & Single Family Mort. Notes	Open
  Treasury & HUD Funds Balance Reconciliation	Completed
  Income Verification	Open

  A total of eight open material weaknesses are being carried over to FY 1997. Five existed at the beginning of FY 1996, and three additional material weaknesses were identified during the year.

• Material nonconformances

  The Department has two material nonconformances carried over from FY 1995.

  1. Departmental Financial Management Systems

     During FY 1996, HUD continued to make progress with the implementation of the Department's Financial Systems Integration (FSI) Plan. All financial and mixed program and administrative systems will link with the Department's Central Accounting and Program System (HUDCAPS) by using a standard interface or integrated software modules. Presently, HUDCAPS consists of the Federal Financial System (FFS) software along with three of HUD's legacy systems, the Program Accounting System (PAS), the Line of Credit Control System (LOCCS), and the Central Reporting System (CRS). HUDCAPS is the Department's primary group of core financial systems for the non-FHA/Ginnie Mae program areas and is used to produce most of the information in the non- FHA/Ginnie Mae portions of HUD's consolidated financial statements. Current plans call for the FFS software to eventually be the Department's primary core financial software.

     In accordance with its project plan, the HUDCAPS project team is evaluating the component structure of the core financial system. Options under consideration include a single commercial off-the-shelf system or a configuration consisting of a commercial off-the-shelf system for administrative accounting and a re-engineered legacy accounting system to support program accounting activities. As part of this evaluation, the project team is preparing a recommendation for final approval by HUD's management.

     The integration of HUD's core financial and program systems will enable the Department to more effectively manage its programs in accordance with projected reduced staffing levels with no sacrifice in quality, accuracy, or timeliness.

     Each of HUD's program offices, as well as the Offices of Administration and the Chief Financial Officer, have developed detailed project plans to implement systems that support program office requirements and are integrated with the core financial system, HUDCAPS. The systems are in various stages of the development life cycle with each system having components in either pilot or operational stage. These systems address the issues associated with data integrity, information access, and data sharing by effectively utilizing advanced technology and contemporary data processing design such as data warehousing and data standardization.

     The Department recently performed an internal evaluation of three HUDCAPS systems, FFS, PAS and LOCCS, and determined that they met most of the requirements under OMB Circular A-127, Financial Management Systems. While some deficiencies remain, the Department has determined that these systems, along with the CRS, which uses data generated by FFS and PAS for internal and external reporting, should not be included as material non-  conformances as discussed in this section. This internal evaluation has not been independently verified by a third party. These core financial systems are identified in the Appendix.

  2. FHA Multifamily Systems

     The Office of Multifamily Housing has taken steps to address its material non- conformance. This includes:

     • Conducted an Information Strategy Plan (ISP) and completed the Business Area Analysis (BAA) of the Multifamily Asset Development and Management System. Also, Multifamily (MF) Housing implemented a pilot of the Risk Assessment Management (RAMS) Subsystem in early October, 1996 with national roll-out during Fiscal Year 1997.

     • MF Housing implemented the MF Housing Data Warehouse that integrates information from several legacy systems. The first phase is in full release to all field offices. Phase II of the MF Housing Data Warehouse is underway. Training for Headquarters and field staff is to be completed by the 2nd quarter of FY 1997.

     • Significant data cleanup and quality assurance efforts were undertaken for Section 8-related programs. Data quality initiatives continue to ensure the accuracy of TRACS (Tenant Rental Assistance Certification System) data. In addition, the TRACS Project Team continues to improve TRACS edits to filter out incorrect or invalid data.

     • For two budget cycles, the Department has interfaced Section 8 contract and accounting data using the budget module of TRACS. The results were used to develop the Department's submission to OMB and the Congress for Section 8 funding needs.

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This information on the Department of Housing and Urban Development's audit resolution and follow-up activity covers the period October 1, 1995 through September 30, 1996. It is required by Section 106 of the Inspector General Act Amendments (P.L. 100-504) and provides information on the status of audit recommendations without management decisions, recommendations with management decisions but no final action, statistics on the total number of audit reports and dollar value of disallowed costs for FY 1996, and statistics on the total number of audit reports and dollar value of recommendations that funds be put to better use, agreed to by a management decision for FY 1996.

• Recommendations without management decisions

  The period began with a total of 389 recommendations without a management decision. Of these, only five recommendations (within one audit) were without a management decision at the close of the reporting period. These five audit recommendations had exceeded the 180 day statutory period to reach a management decision. During the reporting period, 874 recommendations requiring management decisions were added to our active workload. Management decisions were made on a total of 935 recommendations, of which 384 recommendations were in the opening inventory. This reporting period ended with 328 recommendations without management decisions. However, only three of these remaining audit recommendations were beyond the statutory period at the close of the fiscal year.

• Recommendations with management decision but no final action taken

  The Department is pleased to again be able to report that the total number of audit recommendations with management decisions and no final action taken is at its lowest level since the inception of these Congressional reporting requirements in 1989. The number of these recommendations currently stands at 1,267 which represents a reduction of almost 36% from the number (1,965) of these recommendations reported as of September 30, 1994. This is clear evidence of the Department's success in not only reacting to identified deficiencies, but in proactively seeking to reduce the number of reported audit recommendations, by improving the ways in which we do business.

• Status of audits with disallowed costs

  At the beginning of the period (October 1, 1995), there were 217 audits with management decisions on which final action had not been taken, with a dollar value of disallowed costs totaling $264.5 million. During the period, management decisions were made for 62 audits with disallowed costs totaling approximately $38.8 million. The Department had 83 audits in which final action was taken during the fiscal year, with approximately $34.4 million in recoveries and $42.5 million in write- offs. At the end of the period (September 30, 1996), there were 196 audits with disallowed costs awaiting final action, with an associated value of approximately $226.4 million.

• Status of audits with recommendations that funds be put to better use

  At the beginning of the period (October 1, 1995), there were 34 audits with management decisions on which final action had not been taken with recommendations to put funds to better use, with a dollar value of approximately $28.5 million. The Department had 11 audits in which final action was taken during the fiscal year, with a dollar value of $4.1 million of recommendations implemented or completed and a dollar value of $10.4 million of recommendations that management concluded should not or could not be implemented or completed. At the end of the period (September 30, 1996), there were 28 audits with recommendations to put funds to better use awaiting final action with an associated value of approximately $17.4 million.

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HUD's prompt payment percentage at the end of FY 1996 was 82.8%, a decrease from the prior year's performance of 86.1%. This decrease was due to an enhancement made during the year to the Department's administrative accounting system, which resulted in the delay of on-  time payments. The Department's reorganization of its field accounting structure, and a reduction in the number of staff processing payments also resulted in processing delays. Replacement staff used to process payments were unfamiliar with the payment process, and required extensive training. The total amount of late interest paid during the year totalled $172,710, which was slightly higher than the previous years amount of $159,910.

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Civil Monetary Penalties are non-criminal penalties imposed for violations of Federal law, for which a given dollar amount or maximum amount is specified by Federal law and which is assessed or enforced by an agency as a result of an administrative proceeding or civil action in the Federal courts (percentage or variable rate penalties are not included.) The Federal Civil Penalties Inflation Adjustment Act of 1990, P.L. 101-410, provides for regular reporting of penalties assessed and collected by Federal agencies to ensure that they continue to maintain their deterrent value and that penalty amounts due the Federal Government are properly accounted for and collected.

In FY 1996, HUD assessed a total of $320,426 in Civil Monetary Penalties and collected $208,305. As of the end of FY 1996, receivables totaled $655,254 for 15 cases.

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The Department's debt collection activities were approved by OMB as a pilot project under the Government Performance and Results Act of 1993 (GPRA). FY 1996 was the third and final year of the pilot. As was the case in prior years, a performance plan for FY 1996 was prepared for the Department's significant debt collection activities. The debt collection performance plan (1) established meaningful and achievable debt targets for all significant debt collection activities; and (2) holds management accountable for specific commitments made in the plan. HUD views the execution of a Debt Collection Performance Plan not only as part of the continuing efforts in demonstrating its ability to comply with GPRA, but also as a way to reflect its commitment to improve its debt collection results.

In its FY 1996 plan, HUD included all programs with outstanding receivables in excess of $100 million as of September 30, 1993. A primary goal during the year was the collection of $1.75 billion of outstanding receivables due HUD. Through September 30, 1996, HUD collected $1.86 billion, or 106% of the year's goal.

Another key aspect of the Department's debt management initiatives center around its sale of mortgages. These asset sales began in 1994 and were designed to sell up to $11 billion in multifamily and single family mortgages that had been originated by private lenders and insured by FHA. Total proceeds from these asset sales during the year totalled $3.4 billion, and resulted in a gain of $186.7 million.

(1) - represents unpaid principal balance, less allowance for loss and unearned discount.

(2) - costs to sell the mortgages.