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OIG Internal Audit Reports Issued since 1995

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Calendar Year 2009

Issue Date: June 25, 2009
Audit Report No.: 2009-FW-0001
File Size: 417.28KB

Title: HUD’s Disaster Recovery Grant Reporting System Can Collect the Basic Information Needed to Monitor the Neighborhood Stabilization Program

As part of the our plan to review the Neighborhood Stabilization Program (program), we reviewed whether the U. S. Department of Housing and Urban Development's (HUD) Disaster Recovery Grant Reporting system (DRGR) can collect program data at the level of detail necessary to adequately monitor the program. We limited the review to the program established by the Housing and Economic Recovery Act of 2008.

As designed, DRGR can collect the basic information that HUD needs to monitor the program. HUD was in the process of developing monitoring guidance for field staff that separately addresses on-site monitoring and review of grantees' DRGR action plans and quarterly performance reports. HUD needs to ensure its monitoring guidance includes critically reviewing grantee reports to identify potential noncompliance issues, including unreported program income. HUD has an opportunity to do more with data collection and analysis, particularly with additional recovery programs and the associated transparency and reporting requirements. However, HUD should not substitute data collection for aggressive monitoring.

We recommended that the General Deputy Assistant Secretary for Community Planning and Development (1) continue to develop and implement detailed on-site monitoring guidance that incorporates information in DRGR, (2) continue to develop and implement detailed guidance requiring field staff to aggressively review grantee quarterly performance reports and drawdown vouchers, (3) require grantees to include the addresses of properties assisted under the program in quarterly performance reports, and (4) consider adding data fields to DRGR that require grantees to report compliance-related information.


Issue Date: June 19, 2009
Audit Report No.: 2009-PH-0801
File Size: 1.10MB

Title: Corrective Action Verification Review, Upfront Grant for Ridgecrest Heights Apartments, CEMI-Ridgecrest, Inc., Washington, DC, Audit Memorandum 98-AO-219-1804

We completed a corrective action verification of HUD's actions in implementing portions of Audit Memorandum 98-AO-219-1804, issued September 24, 1998; Upfront Grant for Ridgecrest Heights Apartments, CEMI-Ridgecrest, Inc., Washington, DC. The specific objective of this corrective action verification review was to determine if HUD ensured the repayment of excess proceeds from the sale of townhomes located at Ridgecrest Heights Apartments.

HUD failed to adequately follow the procedures it agreed to in its close-out memorandum with the Office of Inspector General. Since HUD did not ensure the grantee submitted the proper documentation to ensure repayment of the sales proceeds, we estimated a preliminary amount of excess sales proceeds due to HUD to be $780,326, subject to additional verification. HUD needs to verify the amount of the sales proceeds and determine whether any funds remain in the project's trust fund, and then ensure those funds are returned to HUD as required by the grant agreement. Based on the results of our verification, we recommend that HUD's Deputy Assistant Secretary of Multifamily Housing Programs verify the final amount of sales proceeds, determine if any amounts should be returned to HUD, and ensure such amounts are repaid to HUD under the terms of the grant agreement. We also recommend that after 10 years from the date of final development has expired, determine whether any funds remain in the project's trust fund, and ensure such amounts are repaid to HUD under the terms of the grant agreement.


Issue Date: June 16, 2009
Audit Report No.: 2009-LA-0801
File Size: 729.27KB

Title: Corrective Action Verification -Housing Authority of Maricopa County, Mixed Finance Development Activities, Phoenix, Arizona

We performed a corrective action verification of HUD's actions in implementing recommendation 1F from our audit of the Housing Authority of Maricopa County's Mixed Finance Development Activities (Rose Terrace and Maricopa Revitalization), Audit Report 2005-LA-1002, issued March 14, 2005. The purpose of the corrective action verification was to determine whether HUD officials appropriately closed audit recommendation 1F in accordance with the management decision dated July 12, 2005. Our corrective action verification found that HUD officials closed recommendation 1F despite concerns by HUD's Office of General Counsel that the recorded status of the declaration posed a significant risk to HUD. If HUD program officials determined that it was appropriate to grant retroactive approval in this manner, they should have requested a revised management decision to reflect the conditions of HUD's retroactive approval. Based on the results of our review, we are reopening recommendation 1F from Audit Report 2005-LA-1002.


Issue Date: June 12, 2009
Audit Report No.: 2009-AO-1801
File Size: 748.25KB

Title: A Few Possible Duplicate Payments May Have Occurred under Phase II of the State of Mississippi ’s Homeowner Assistance Program

We audited the State of Mississippi's (State) administration of the $5.058 billion in Community Development Block Grant (CDBG) disaster recovery funds provided to the State in the aftermath of Hurricane Katrina. The State allocated $2.2 billion to help homeowners in southern Mississippi recover from Hurricane Katrina. During our audit on grant eligibility, we identified a few possible duplicate payments when reviewing the State's disbursement database. Therefore, we expanded our review to address these potential duplicates.

We believe that the State's controls were generally functioning properly. However, of 5,928 grants disbursed, the State may have funded 34 (less than 1 percent) duplicate grants. Testing on six grants showed that three were eligible; two were ineligible; and one was unsupported. Based on the grants identified as ineligible and unsupported, it is possible that the State may have funded duplicate grants. We believe that only half of the remaining grants related to duplicate addresses and duplicate Social Security numbers were possible duplicates, since one may have been eligible.

We recommended that HUD require the State to coordinate with HUD to recover $128,267 for ineligible grants; support or recover $53,604 for the unsupported grant; and review the remaining grants, of which $1,695,935 is unsupported, and recover any funds for grants that are deemed ineligible.


Issue Date: June 11, 2009
Audit Report No.: 2009-DP-0005

Title: Review of Implementation of Security Controls over HUD's Business Partners (Report Not Available to the Public)

We conducted an audit to determine whether technical, management, and operational controls were in place to ensure adequate protection of the U.S. Department of Housing and Urban Development's (HUD) data and resources at its third-party business partners' sites that remotely access or physically process and maintain HUD data outside the Department's secured physical perimeter. We also determined whether HUD complied with applicable federal requirements that apply to planning, establishing, and maintaining interconnections and data sharing among information technology systems that are owned and operated by the third-party business partners. The OIG has determined that the contents of this report would not be appropriate for public disclosure and have limited its distribution to selected officials.


Issue Date: May 29, 2009
Audit Report No.: 2009-DP-0004

Title: Fiscal Year 2008 Review of Information Systems Controls in Support of the Financial Statements Audit (Report Not Available to the Public)

We reviewed general and application controls for selected information systems to assess management controls over the U.S. Department of Housing and Urban Development's (HUD) computing environments as part of the Office of Inspector General's (OIG) audit of HUD's financial statements for fiscal year 2008 under the Chief Financial Officer's Act of 1990. Our review was based on the Government Accountability Office's "Federal Information Systems Controls Audit Manual" and information technology guidelines established by the Office of Management and Budget, and the National Institute of Standards and Technology. The OIG has determined that the contents of this report would not be appropriate for public disclosure and have limited its distribution to selected officials.


Issue Date: May 28, 2009
Audit Report No.: 2009-FW-0801
File Size: 137.87KB

Title: Tenant Confirmation for Disaster Housing Assistance Program for March and April 2009

At the request of the Office of Public and Indian Housing (PIH), we performed a limited review of a random sample of 112 March and April 2009 Disaster Housing Assistance Program (DHAP) payments for Hurricane Katrina and Hurricane Rita evacuees. The objective was to verify whether the authorized tenants lived in the residences in March and April 2009.

Testing identified 20 instances of potentially ineligible payments totaling $9,478 and some other matters that warrant PIH's attention. The 20 payments were potentially ineligible because they were for tenants who did not live in their assisted units during March and/or April 2009 while their landlords were paid for those units for those months. Of the 112 samples, there were 14 potentially ineligible payments totaling $7,448 in March 2009 and six potentially ineligible payments totaling $2,030 in April 2009.

We recommended, and PIH agreed, that it would work with public housing agencies to determine the eligibility of the questionable payments and require repayment when appropriate. We further recommended, and PIH agreed, that it would help the public housing agencies develop controls and policies to ensure the accuracy of payments each month and identify when tenants vacated their units.


Issue Date: May 22, 2009
Audit Report No.: 2009-CH-0001
File Size: 79.29KB

Title: The U.S. Department of Housing and Urban Development Complied with the Office of Management and Budget's Competitive Sourcing Requirements Governing Its Management of Human Capital

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's management of human resources. We initiated the audit based on our annual audit plan and our strategic plan to help HUD resolve its major management challenges. Our objective was to determine whether HUD implemented a process and methodology to determine when to contract out for services or when to keep the services in house. Our audit did not include reviewing procurement items and/or competitions before December 1, 2004, and it did not include a review of HUD's procurement and/or contracting activities to determine whether they meet applicable federal requirements. This is the final of three audit reports regarding HUD's management of its human resources.

HUD complied with the Office of Management and Budget's (OMB) requirements for the competition of commercial activities (competitive sourcing procedures). All three of the streamline competitions statistically selected for review contained adequate documentation to support HUD's assessment of whether government employees should perform tasks that are readily available in the commercial marketplace or rely on the private sector for the performance of those tasks.


Issue Date: April 30, 2009
Audit Report No.: 2009-FO-0005

Title: Mortgage-Backed Securities Program Document Review (Report Not Available to the Public)

We completed a review of Government National Mortgage Association (Ginnie Mae) Mortgage-Backed Securities (MBS) program's contract documents and other program related representations. Additionally, we reviewed certain business practices related to ensuring that mortgages were insured. We conducted the audit because of OIG senior management's concerns about potential internal control weaknesses in Ginnie Mae's MBS program. Our objectives were to determine whether Ginnie Mae (1) agreements with the issuers sufficiently protected Ginnie Mae against fraud or other misrepresentation in the MBS program and (2) had implemented sound business practices to ensure that only insured mortgages remained in Ginnie Mae pools. The OIG has determined that the contents of this report would not be appropriate for public disclosure and have limited its distribution to selected HUD officials.


Issue Date: April 15, 2009
Audit Report No.: 2009-FO-0004

File Size: 681.02KB

Title: Review of HUD's Internal Controls over Processing of Personnel Actions

We audited the U.S. Department of Housing and Urban Development's (HUD) Office of Administration's internal controls over the processing of personnel actions in response to an anonymous complaint received by our office. Our objectives were to determine why (1) human resource actions were not processed in a timely manner, (2) employee requests to waive the automatic collection of payroll overpayments were not processed before collection actions began, (3) adequate documentation to support job vacancy announcements was not maintained, and (4) employees were able to initiate their own personnel action requests.

The design and implementation of HUD's internal controls over collection waivers, new hire paperwork, processing of awards, promotions, within-grade increases, pending personnel action requests, and job vacancy announcements were inadequate. The issues identified in our review indicated a lack of internal controls to ensure (1) the timely processing of collection waiver requests and new hire paperwork, (2) that employees were afforded the opportunity to request a collection waiver before salary offsets were taken, and (3) that Office of Personnel Management job announcement policies and procedures and record-keeping standards were followed. Finally, in certain circumstances, the HR Connect system lacked the controls to prevent employees from being involved in the processing of their own personnel action requests, which made HUD vulnerable to the processing of potentially fraudulent actions.

We recommend that the Director of HUD's Office of Human Resources implement a tracking system for (1) monitoring new hire accession paperwork and (2) processing awards, promotions, within-grade increases, transmittal of application status notification letters, and collection waiver requests. Additionally, policies and procedures regarding the processing of collection waiver requests should include timeliness standards for the research and review phases to ensure that decisions are made in a timely manner and that collection actions are not premature. In addition, we recommend that policies and procedures be established to include supervisory review of pending new hire paperwork actions, job announcement case files, and checklists upon closeout. Staff should be retrained regarding new hire paperwork policies and procedures. We also recommend that the Director of the Office of Human Resources ensure that staff perform the necessary reviews to certify that each job vacancy case file properly supports the recruitment process and employees do not participate in the processing of their own personnel action requests. Lastly, we recommend that all employees be informed that it is not allowable to participate in the processing of their own personnel action requests.


Issue Date: April 8, 2009
Audit Report No.: 2009-AO-0003
File Size: 280.20KB

Title: HUD Could Not Demonstrate That Its Receivership Improved the Housing Authority of New Orleans' Performance

At the request of two United States senators, we initiated an audit of the U.S. Department of Housing and Urban Development's (HUD) administration of the Housing Authority of New Orleans (Authority) to determine the effect of HUD's receivership on the Authority's performance. Specifically, we wanted to determine whether HUD had taken action to improve the Authority's post-Hurricane Katrina performance while under HUD receivership by determining whether HUD had an adequate recovery plan to return the Authority to local control and adequately monitored the Authority while under receivership.

HUD could not demonstrate that its receivership improved the Authority's performance following Hurricane Katrina because it did not establish a clear chain of command for the receivership or require periodic reporting after it took over the Authority in 2002. HUD did not properly monitor the Authority or, until recently, ensure that the receivers had an adequate recovery plan. Further, it was unclear how HUD intended to guide the Authority while under receivership after the last formal memorandum of agreement expired in 2003.

We recommend that the Deputy Assistant Secretary, Office of Field Operations, establish an organizational structure for receivership that outlines responsible officials and their duties and appoint a monitoring team, independent of the receiver, to ensure that the Authority progresses toward local control. In addition, the Deputy Assistant Secretary should have the monitoring team consistently review and verify documentation pertaining to the Authority's progress and ensure that the Authority meets the target dates in the strategic improvement plan that it implemented in July 2008.


Issue Date: February 6, 2009
Audit Report No.: 2009-SE-0002
File Size: 1.69MB

Title: NAHASDA's Program Income from 1937 Act Properties

We audited the U.S. Department of Housing and Urban Development (HUD) Office of Native American Program's (ONAP) rules regarding calculation of program income under the Native American Housing and Self-Determination Act of 1996 (NAHASDA). Our objectives were to determine whether ONAP's guidance on calculating program income for the NAHASDA-assisted 1937 Act housing projects was consistent with generally accepted accounting principles. We also wanted to determine whether the affects of implementing this guidance was consistent with the purpose and goals of NAHASDA.

Policies established by ONAP allowed tribal housing authorities to redirect and abuse rent revenue from NAHASDA-assisted Low Rent program units developed under the 1937 Act. This condition occurred because HUD's program income regulations are ambiguous and ONAP's corresponding program income guidance is not consistent with generally accepted accounting principles. Further, ONAP allowed tribal authorities to claim these funds as unrestricted income retroactively to 1998 and use the funds to cover expenditures that are not permitted under NAHASDA. As a result, tribal housing authorities redirected and abused millions of dollars in rent collected from low-income Native Americans living in NAHASDA-assisted units. While the total amount of redirected revenue is not known, we observed over $12.6 million redirected from 1937 Act properties. Nationwide, ONAP's program income guidance provided tribes the opportunity to redirect up to $40 million per year in rent revenue from NAHASDA-assisted 1937 Act properties. This amount totals about $400 million in NAHASDA-assisted rental revenue that is currently unrestricted or available to be retroactively reclassified as unrestricted by restating accounting records back to 1998. HUD lacks assurance that all of these funds have been used to maintain existing rental properties or to assist other families in obtaining affordable housing in conformance with the purpose and goals of NAHASDA.

We recommend that HUD's Deputy Assistant Secretary, Office of Native American Programs, (1) take immediate action to suspend the redirecting of revenue from NAHASDA-assisted 1937 Act units unless all costs for operation, maintenance, rehabilitation, and capital improvement have been reimbursed by offsetting expenses against revenue of those units in a method consistent with self-sufficiency and (2) rescind Public and Indian Housing Notice 2000-18 and associated guidance, such as Program Guidance Memorandums 2001-3T and 2002-12, until appropriate guidance can be designed that supports the purpose and goals of NAHASDA.


Issue Date: January 29, 2009
Audit Report No.: 2009-AO-0002
File Size:662KB

Title: HUD's Receivership Did Not Ensure That the Housing Authority of New Orleans Properly Accounted for Its Fungibility Funding, Monitored and Paid Two of Its Contractors, and Paid Its Accounts Payable Disbursements

At the request of two United States senators, we initiated an audit of the U.S. Department of Housing and Urban Development's (HUD) administration of the Housing Authority of New Orleans (Authority) to determine the effect of HUD's receivership on the Authority's performance in its contracting activities and financial functions. Specifically, we wanted to determine whether HUD's receivership ensured that the Authority properly (1) accounted for its fungibility funds, (2) monitored and paid its contractors, and (3) disbursed its accounts payable.

HUD's receiver did not ensure that the Authority

(1) Correctly supported, expensed, or reported its expensed fungible funds in accordance with HUD requirements, resulting in at least $3.5 million in unsupported expenses and $2.3 million in ineligible expenses that were unreported in its annual progress report and at least $1.4 million in additional unsupported expenses that were reported in the report;

(2) Monitored and/or paid two of its contractors in accordance with contract terms and the Authority's procurement policy, resulting in $97,193 in ineligible costs and $1,153 in unsupported costs paid on one of the contracts; and

(3) Supported 10 of 20 accounts payable disbursements in accordance with the Authority's financial policy, resulting in at least $15,000 in unsupported costs for those 10 disbursements.

We recommend that HUD require the receiver to ensure that the Authority provides support or repays the ineligible and unsupported costs. We further recommend that the Authority provide an accurate annual progress report, including all eligible fungibility funds expensed in its 2006 annual report, and develop and implement the appropriate controls to ensure that the Finance Department (1) maintains adequate financial records for the accounts payable disbursements and (2) properly authorizes its accounts payable disbursements to safeguard the accounts payable funding.


Issue Date: January 9, 2009
Audit Report No.: 2009-DP-0003

Title: Review of the Centralized HUD Account Management Process (Report Not Available to Public)

We have completed the review of the Centralized HUD Account Management Process (CHAMP). Our overall objective was to evaluate CHAMP to determine whether HUD efficiently and effectively managed its information system user access accounts in accordance with federal security requirements. We assessed the accuracy and completeness of data in CHAMP and verified the adequacy of HUD's user account management, including establishing, activating, modifying, disabling, and removing of the user accounts. For criteria, we used Federal Information Processing Standards publications, National Institute of Standard and Technology guidelines, and other applicable security management-related guidance. The OIG has determined that the contents of this report would not be appropriate for public disclosure. Therefore, we have limited its distribution to selected HUD officials.


Calendar Year 2008

Issue Date: December 12, 2008
Audit Report No.: 2009-AO-0001
File Size: 1.16MB

Title: HUD’s Receiver Did Not Provide Adequate Management Oversight To Ensure that the Authority Complied with HUD’s Requirements When Operating its Voucher Program and Public Housing Operations

At the request of two United States Senators, we initiated an audit of the U.S. Department of Housing and Urban Development’s (HUD) administration of the Housing Authority of New Orleans (Authority). Our audit objective was to determine whether HUD’s receiver provided adequate management oversight to ensure the Authority complied with HUD’s requirements. Specifically, to determine whether HUD’s receiver ensured that the Authority’s (1) Housing Choice Voucher Program and Disaster Voucher Program (voucher program) units complied with housing quality standards, (2) public housing units were in good repair, (3) voucher program tenants were eligible to participate in the voucher programs, (4) voucher program assistance was calculated and paid accurately, and (5) Section 8 waiting list was properly maintained.

HUD’s receiver did not provide adequate management oversight to ensure that the Authority complied with HUD’s requirements when operating its voucher program and public housing operations. Specifically, HUD’s receiver

(1) Did not ensure that eight of ten sample voucher program units complied with HUD’s housing quality standards;

(2) Did not ensure that six of nine sample public housing units were in good repair; and

(3) Did not ensure that the Authority used a rent reasonableness system to avoid excessive payments to landlords, properly calculated or paid voucher program tenant rents, and maintained a proper waiting list for its Section 8 program.

We recommend that the Deputy Assistant Secretary, Office of Field Operations, require the receiver to ensure that the Authority conducts not only annual inspections on all of its voucher program units but also all of the supervisory quality control inspections required by its administrative plan, implements a process to routinely review the performance of its public housing managers and the physical condition of its public housing units to ensure compliance with HUD’s requirements, develops and implements a method to assess rent reasonableness to owners, properly calculates and pays rent assistance, and maintains a proper waiting list that complies with HUD’s requirements for its Section 8 applicants.


Issue Date: December 9, 2008
Audit Report No.: 2009-PH-0001
File Size: 690.72KB

Title: HUD's Region 3 Program Centers Did Not Always Process Section 202 and Section 811 Capital Advances in Accordance with HUD Requirements

We audited the U.S. Department of Housing and Urban Development’s (HUD) processing of its Section 202 and Section 811 capital advances as a part of our annual audit plan. The audit objective was to determine whether HUD’s program centers under the jurisdiction of its Region 3 (program centers) processed Section 202 and Section 811 capital advances in accordance with HUD requirements.

Program centers did not always process Section 202 and Section 811 capital advances in accordance with applicable HUD requirements. Two of six program centers did not obtain required approval from HUD headquarters to extend the fund reservation period past 24 months for 21 of 58 open projects with capital advances valued at $46.3 million. HUD had not implemented controls to monitor compliance with this requirement, which is intended to ensure that extending the fund reservation period is consistent with the HUD Secretary’s goal of increasing affordable housing for low-income families. Additionally, of the 60 projects that received fund reservation letters during the audit period, 50 (83 percent) were not approved for construction within HUD’s 18-month guideline. Capital advance funding often did not cover housing development costs, and program centers did not consider canceling projects despite indications that they would be significantly delayed.

We recommend that the Deputy Assistant Secretary for Multifamily Housing direct responsible program centers to (1) justify and obtain approval from headquarters to extend the fund reservation period past 24 months for two projects with capital advances totaling $1.8 million that have not gone to initial closing or cancel them, if appropriate, (2) justify and provide current status for 19 projects with capital advances of $44.5 million that went to initial closing although program centers had not obtained required HUD approvals of the fund reservation period past 24 months and ensure that the use of the funds is consistent with the HUD Secretary’s goal of increasing affordable housing for low-income families, and (3) establish and implement adequate controls for obtaining required headquarters approvals for extension of the fund reservation period past 24 months and for reviewing projects and making recommendations to cancel projects when warranted. We also recommend that the Deputy Assistant Secretary for Multifamily Housing recommend that the Assistant Secretary for Housing - Federal Housing Commissioner reevaluate the effectiveness of HUD’s current method for calculating capital advances to ensure that it covers the development costs for Section 202 and Section 811 projects or consider providing notice in the Federal Register that additional capital advance funds will generally be needed to cover the costs of developing the housing.


Issue Date: December 8, 2008
Audit Report No.: 2009-SE-0801
File Size: 247.53KB

Title: HUD’s Recent Performance-based Contract Administration Activity Was Inconsistent with Agreed-Upon Management Decisions between HUD and HUD OIG on Audit Report 2007-SE-0001, Dated June 7, 2007

We performed a review of HUD's recent invitation to submit applications (invitation) for performance-based contract administrator services for Southern California to be effective June 1, 2009, and its related annual contributions contract (contract) due to a complaint and concerns that this activity may have been inconsistent with agreed-upon management decisions on Audit Report 2007-SE-0001. The purpose of this review was to determine whether the invitation and the related proposed contract were consistent with the management decisions on our audit report and to advise the Acting Deputy Assistant Secretary for Multifamily Housing of any inconsistency.

Our review found that HUD did not implement the two recommendations from Audit Report 2007-SE-0001 calling for changes to the contract. As a result, the deficiencies reported in that report were not corrected. Consequently, HUD could pay as much as $1.9 million or 19 percent of the contract's basic fee each year for work not required and not performed on this contract and will not achieve its objective of obtaining the best value for dollars spent for contract administrator services.

We recommend that HUD's Assistant Secretary for Housing, immediately rescind the invitation until such time as it and its related contract are revised so they do not include tasks that are not required, include a mechanism to adjust workload and commensurate fees as program needs change, and include a provision for making adjustments to the contracts in the future if requirements change.


Issue Date: December 2, 2008
Audit Report No.: 2009-DP-0002

Title: Review of Controls over Securitized Single Family Loans (Report Not Available to the Public)

We have completed a review of a Ginnie Mae internal control process. We conducted the audit because of concerns about potential exposure of the Ginnie Mae Mortgage-Backed Securities programs to fraud and the status of mortgage insurance on mortgages that were issued into the Ginnie Mae mortgage-backed securities pools. Our objective was to perform a limited scope review to assess the “match to terminated” process and the related documentation for the Mortgage Backed Securities Information System. The OIG has determined that the contents of this report would not be appropriate for public disclosure and have limited its distribution to selected HUD officials.


Issue Date: November 20, 2008
Audit Report No.: 2009-DP-0001
File Size: 497.50KB

Title: Review of Single-Family Partial Claims Collection Process

We audited the single-family partial claims collection process and its effectiveness in protecting the Federal Housing Administration’s (FHA) insurance fund. Our overall objective was to determine whether the single-family partial claims program operated effectively and efficiently to minimize costs to the insurance fund and collect amounts due in a timely manner. The National Service Center (NSC) and its contractors did not properly implement a cohesive partial claims collection process to ensure that partial claims were serviced in a timely manner. The NSC did not (1) fully develop and implement written policies and procedures, (2) define follow-up procedures for the forbearance plan option, (3) promptly transfer partial claims to the Albany Financial Operations Center, and (4) actively track and monitor lender billing. We recommend that the Assistant Secretary for Housing ensure that the NSC formulates and implements procedures to comply with federal regulations and enhance training provided to its contractors so that debts can be transferred to the Financial Operations Center in a timely manner. We further recommend that the Director of the Servicing and Loss Mitigation Division develop procedures to pursue lenders for administrative offsets in a timely manner and to improve the forbearance plans. We also recommend that the Single Family Mortgage Asset Recovery Technology system be fully implemented as the one system of record for partial claims.


Issue Date: November 14, 2008
Audit Report No.: 2009-FO-0003
File Size: 670.34KB

Title: Additional Details to Supplement Our Report on HUD’s Fiscal Years 2008 and 2007 Financial Statements

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 2008 and 2007 Financial Statements, which is included in HUD's Fiscal Year 2008 Performance and Accountability Report.

In OIG's opinion, based on our audit and the reports of other auditors, the financial statements were presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.

The report identifies (a) seven significant weaknesses, and (b) four instances of noncompliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate the deficiencies noted, and makes recommendations for corrective actions. During the course of the audit, OIG also identified several matters that are not material to the financial statements and are being reported separately to HUD management.


Issue Date: November 7, 2008
Audit Report No.: 2009-FO-0002
File Size: 840KB

Title: Audit of the Federal Housing Administration’s Financial Statements for Fiscal Years 2008 and 2007

This report presents the results of Urbach, Kahn, and Werlin LLP's (UKW) audit of the Federal Housing Administration's (FHA) financial statements for the fiscal years ended September 30, 2008 and 2007.

In UKW's opinion, the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 2008 and 2007, and its net costs, changes in net position, and combined budgetary resources for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The report identifies one significant deficiency on internal control and two reportable instances of non-compliance with laws, regulations and government-wide policies. Additionally, it discusses the issues/conditions in detail, provides an assessment of management’s responses to the report, and makes recommendations for corrective actions. UKW also noted other matters involving internal control and its operations that are not material to the financial statements and are being communicated separately to FHA’s management.


Issue Date: November 7, 2008
Audit Report No.: 2009-FO-0001
File Size: 405KB

Title: Audit of Government National Mortgage Association’s (Ginnie Mae) Financial Statements for Fiscal Years 2008 and 2007

This report presents the results of Carmichael, Brasher, Tuvell and Company's (CBTC) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the fiscal years ended September 30, 2008 and 2007. In CBTC's opinion, the financial statements present fairly, in all material respects, Ginnie Mae’s financial position as of September 30, 2008 and September 30, 2007 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The report identifies one significant deficiency on internal control and one reportable instance of non-compliance with laws, regulations and government-wide policies. Additionally, it discusses the issues/conditions in detail, provides an assessment of management’s responses to the report, and makes recommendations for corrective actions. CBTC also noted other matters involving internal control and its operation that are not material to the financial statements and are being communicated separately to Ginnie Mae's management.


Issue Date: October 16, 2008
Audit Report No.: 2009-NY-0001
File Size: 1.43MB

Title: HUD Did Not Adquately Monitor Its Performance-Based Contract Adminstrator, New York State Housing Trust Fund Corporation

We completed an audit of the U.S. Department of Housing and Urban Development's (HUD) monitoring of its annual contributions contract with its performance-based contract administrator, the New York State Housing Trust Fund Corporation (contractor). The audit was initiated in accordance with the Office of Inspector General's (OIG) audit plan that includes performing internal audits to evaluate HUD's execution of its fiscal responsibilities. Our audit objective was to determine whether HUD appropriately monitored the contractor with respect to contract performance.

The audit disclosed that HUD did not effectively assess the performance and contractual compliance of the contractor and its subcontractor. Specifically, HUD did not fulfill its monitoring responsibilities regarding appeals of fee determinations, monthly invoice reviews, and the annual compliance review. In addition, HUD headquarters and hub management failed to keep open lines of communication to provide clear and concise guidance. We attribute these conditions to a lack of written policies and procedures for (1) addressing the complexities of contractor oversight by two hubs, (2) ensuring that consistent performance criteria were used by the hubs, and (3) handling disagreements regarding interpretations of program directives. As a result, more than $2.08 million in reduced administrative fees that were reversed were unsupported, and the contractor's substandard performance was not adequately addressed.

We recommend that the Deputy Assistant Secretary for Multifamily Housing require the Director of Housing Assistance Contract Administration Oversight to (1) establish policies and procedures defining the roles and responsibilities of hub staff, (2) provide training to hub staff in monitoring the contractor's performance, and (3) examine the appeals and ensure that the appropriate supporting documentation exists for the more than $2.08 million in fees reimbursed to the contractor. In addition, we recommend that the Deputy Assistant Secretary for Multifamily Housing require the HUD New York and Buffalo multifamily hubs to develop policies and procedures for monitoring the Section 8 contract administration initiative and reviewing challenges to HUD's fee determination, the monthly invoice review, and the annual compliance review.


Issue Date: September 30, 2008
Audit Report No.: 2008-DP-0802

Title: OIG Response to Questions from the Office of Management and Budget under the Federal Information Security Management Act of 2002
(Report Not Available to Public)

The Federal Information Security Management Act of 2002 (FISMA) directs the Office of the Inspector General (OIG) to perform an annual independent evaluation of the U.S. Department of Housing and Urban Development's (HUD) information security program and practices. This memorandum presents the results of the OIG's evaluation of HUD’s compliance with FISMA. The OIG has determined that the contents of this memorandum would not be appropriate for public disclosure and has therefore limited its distribution to selected officials.


Issue Date: September 30, 2008
Audit Report No.: 2008-AT-0803
File Size: 331.57KB

Title: Corrective Action Verification, The Housing Authority of the City of Cuthbert, Georgia, Public Housing Programs

HUD OIG performed corrective action verification for an audit recommendation cited in the audit report, Cuthbert Housing Authority, Public Housing Programs (2004-AT-1001) issued January 15, 2004. The purpose of the corrective action verification was to determine whether the selected audit recommendation was implemented and expended its funds in accordance with HUD regulations.

The Authority did not comply with its HUD-approved agreement to obtain repayment of $327,326 advanced to one of its affiliates, the Development Corporation, and did not stop advancing funds until November 2004, although it agreed it would stop by June 2004. The Authority collected sporadic payments from the Development Corporation after the agreement was executed, leaving a current balance of $224,494. In addition to the $224,494, we verified two other receivables of $148,305 and $126,609 advanced by the Authority to the Development Corporation. Also, the Authority paid a law firm $9,000 to lobby the Georgia state legislature to eliminate barriers to developing affordable housing in rural Georgia.

OIG recommended that the Director of HUD's Atlanta Office of Public Housing continue to work with the Authority to collect $224,449 from the Development Corporation and reimburse its operating fund, require the Authority to collect $274,914 from the Development Corporation and reimburse its operating fund, apply appropriate sanctions if the Authority does not comply with its payback agreement, and require the Authority to reimburse its operating fund $9,000 from nonfederal sources.


Issue Date: September 30, 2008
Audit Report No.: 2008-CH-0003
File Size: 2.04MB

Title: The U.S. Department of Housing and Urban Development Needs to Improve Its Existing Procedures and Controls Regarding Its Management of Human Capital

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General reviewed HUD's management of human resources. We initiated the review based on our annual audit plan and our strategic plan to help HUD resolve its major management challenges. The review also addressed a complaint to our Hotline regarding the adequacy of HUD’s Total Estimation and Allocation Mechanism (TEAM) system. Our objectives were to determine the adequacy of HUD’s staffing resources in meeting its program objectives and whether HUD’s offices used HUD’s Resource Estimation and Allocation Process (REAP) studies when they had the ability to hire. This is the second of three audit reports planned on HUD’s management of its human resources.

HUD lacked a valid basis for assessing its human resource needs and allocating staff within its program offices. Three of the five offices statistically selected for review could not provide adequate documentation to support their assessment of human resource needs and allocation of staff among their headquarters and field office locations. As a result, HUD lacked assurance that its allocation of staff was based on supportable need and it accurately determined the human resources required to meet its performance goals under the Government Performance Results Act (GPRA).

HUD’s program offices used the REAP studies when they had the ability to hire; however, they lacked adequate documentation to support their hiring practices. In particular, five of the seven HUD program offices selected for review were unable to provide adequate documentation to support their hiring of staff. As a result, HUD lacked assurance that its program offices’ hiring was appropriate.

Lastly, the complainant’s allegation regarding the adequacy of HUD’s TEAM system lacked a supportable basis as he did not have a complete understanding of the system.

We recommend that HUD’s Chief Financial Officer implement a plan detailing how HUD’s program offices will use REAP and the TEAM systems to determine which program offices need to be reassessed, continue providing training, and obtain feedback from the Office of Fair Housing and Equal Opportunity regarding the pilot of the TEAM system’s allocation module. If the pilot is determined to be successful, HUD’s Chief Financial Officer should take the necessary steps to implement the allocation module in HUD’s other program offices.


Issue Date: September 30, 2008
Audit Report No.: 2008-KC-0007
File Size: 150.95KB

Title: HUD Inappropriately Authorized the Use of Residual Receipts in Lieu of Reserve for Replacement or Operating Funds

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's use of residual receipts in lieu of reserve for replacement funds. The objective of the audit was to determine whether HUD appropriately authorized residual receipt withdrawals in lieu of reserve for replacement funds for new regulation multifamily projects.

HUD inappropriately authorized the use of more than $3.2 million in residual receipt funds for new regulation multifamily projects for ineligible costs. Regional and field office staff nationwide were either not familiar with or overlooked the residual receipt use requirements for new regulation multifamily projects. As a result, HUD lost $3.2 million that it could have used more effectively for additional housing subsidies and other authorized taxpayer purposes.

We recommend that HUD, on a project-by-project basis for the 14 projects reviewed, ensure that the project reimburses the residual receipts account with reserve for replacement or operating funds, unless this action negatively affects the project. In addition, HUD needs to ensure that regional and field office staff fully understands and complies with the requirements regarding the use of residual receipts for new regulation multifamily projects.


Issue Dated: September 29, 2008
Audit Report No.: 2008-CH-0002
File Size: 87.06KB

Title: HUD Did Not Always Ensure That FHA Lenders Complied with Federal Requirements When Submitting Loans for New Construction Properties Located in FEMA’s Designated Special Flood Hazard Areas

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited HUD's oversight of the underwriting of Federal Housing Administration (FHA)-insured loans for new construction properties located in the Federal Emergency Management Agency’s (FEMA) designated special flood hazard areas. We initiated the audit as part of the activities in our 2007 annual audit plan. Our objective was to determine whether HUD had adequate oversight of the underwriting of FHA loans for new construction properties located in FEMA’s designated special flood hazard areas.

HUD did not always ensure that FHA-approved lenders complied with federal requirements when they submitted 399 loans, totaling more than $55 million in original mortgage amounts, to HUD for insurance endorsement. The loans were to finance the purchase of newly constructed properties located in FEMA’s designated special flood hazard areas. However, the lenders failed to provide evidence of a letter of map revision/amendment or flood elevation certificate when the loans were submitted to HUD for insurance endorsement. Therefore, these loans were not eligible for FHA insurance. Further, for 195 loans, totaling nearly $27 million in original mortgage amounts, the lenders did not ensure that borrowers’ escrow accounts included payments for flood insurance at the time the loans closed.

HUD also did not ensure that lenders servicing FHA-insured loans for 163 properties, totaling nearly $22 million in original mortgage amounts and located in FEMA’s designated special flood hazard areas, kept apprised of whether borrowers maintained required flood insurance. Further, 30 FHA lenders incorrectly certified to the integrity of the data supporting the underwriting deficiencies and that the loans were eligible for HUD mortgage insurance for 242 loans.

As a result, HUD inappropriately approved loans for FHA mortgage insurance; therefore, the risk to the FHA insurance fund is increased if HUD pays insurance claims and incurs losses on the resale of the properties associated with these ineligible FHA-insured loans. Further, the lenders’ failure to ensure that borrowers maintained flood insurance throughout the life of the loans would pose a significant risk if another natural flood disaster was to occur such as Hurricanes Rita or Katrina or the flooding that has recently devastated parts of the Midwest.

We recommend that the Assistant Secretary for Housing-Federal Housing Commissioner (1) seek appropriate administrative action for the active loans if the lenders cannot provide documentation, such as a letter of map amendment/revision, to show that the properties are not located in FEMA’s designated special flood hazard areas or the required elevation certification showing that the properties meet elevation requirements and are covered by flood insurance; (2) require the applicable lenders to reimburse HUD for any future losses from claims paid if they cannot provide the elevation certifications or letters of map revision/amendment; (3) require the lenders for the loans lacking flood insurance to provide evidence showing that the properties have flood insurance or are no longer located in FEMA’s designated special flood hazard areas or seek appropriate administrative action; (4) and improve the Office of Single Family Housing’s existing procedures and controls to ensure that lenders follow HUD’s underwriting requirements for new construction properties located in FEMA’s designated special flood hazard areas. These improved procedures and controls should result in a potential savings to the FHA insurance fund of nearly $261,000 over the next year.

We also recommend that HUD’s Acting Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud Civil Remedies Act against the lenders with incorrect certifications cited in this audit report.


Issue Date: September 29, 2008
Audit Report No.: 2008-CH-0001
File Size: 87.06KB

Title: HUD Did Not Always Ensure That FHA Lenders Complied with Federal Requirements Regarding Home Equity Conversion Mortgages

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited HUD's oversight of the Federal Housing Administration (FHA)-insured home equity conversion mortgages (HECM) program. We initiated the audit as part of the activities in our 2008 annual audit plan. Our audit objective was to assess elements of HUD’s oversight of the HECM program. This is the first of two audit reports regarding the HECM program and focuses on lender notification of borrower deaths and payment of debenture interest.

HUD did not ensure that FHA lenders reported borrowers’ death in accordance with federal requirements. For the 31 loans reviewed, HUD’s contractor failed to provide documentation to support that FHA lenders notified HUD of borrowers’ deaths in writing. Further, the lenders failed to notify the contractor of borrowers’ deaths for 11 of the 31 loans and for 13 loans, did not report in a timely manner the dates of borrowers’ death.

HUD failed to pay debenture interest on HECM loans. For 13 of the 30 loans in which HUD paid claims during the period March 1, 2006, through February 29, 2008, it did not pay debenture interest to the lenders in accordance with federal requirements.

As a result, HUD could not be assured that FHA lenders appropriately met HUD’s time requirements for initiating the foreclosure process or for recording the deeds-in-lieu to take possession of the property, which impacts the amount of the lenders’ insurance claims. Additionally, as a result of HUD’s failure to pay lenders debenture interest on HECM loans from the loans’ due date to the claim payment date, it owes lenders debenture interest on HECM loans.

We recommend that the Assistant Secretary for Housing-Federal Housing Commissioner require that HUD’s Office of Single Family Housing improve its existing procedures and controls to ensure that lenders follow HUD’s requirements for servicing HECM loans and implement adequate procedures and controls to ensure that the Office of Single Family Housing complies with federal requirements in the administration of the HECM program, including the proper payment of claims, and curtail interest payments to the appropriate lenders for the loans identified in this audit report that HUD determines failed to meet all of its time requirements.


Issue Date: September 11, 2008
Audit Report No.: 2008-DP-0007

Title: Evaluation of HUD ’s Security Controls over Databases (Report Not Available to Public)

We have completed an Evaluation of HUD’s Security Controls over Databases. Our overall objective was to determine if the security implemented on HUD’s network provides adequate controls to prevent abuse or unauthorized access to the Department’s information resources. We reviewed HUD’s database environment by evaluating security measures in place that guard these assets, scanning identified databases, and identifying vulnerabilities and suspect configurations that place information at risk. For criteria, we used recommendations from the following Special Publications issued by the National Institute of Standards and Technology: NIST SP 800-53, “Recommended Security Controls for Federal Information Systems Standards,” and NIST SP 800-40, “Procedures for Handling Security Patches.” We also used requirements from the Federal Information Security Management Act of 2002. The OIG has determined that the contents of this report would not be appropriate for public disclosure and have limited its distribution to selected HUD officials.


Issue Date: September 8, 2008
Audit Report No.: 2008-KC-0006
File Size: 386.46KB

Title: HUD’s Office of Single Family Housing Had Not Fully Implemented an Internal Control Structure in Accordance with Requirements

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General, audited HUD's Office of Single Family Housing (Single Family) due to concerns over the expected increase in Federal Housing Administration (FHA)-insured loans generated by newly implemented and proposed FHA programs. The objective of our audit was to determine whether Single Family had implemented an internal control structure in accordance with Government Accountability Office (GAO) internal control standards and HUD requirements.

We concluded that Single Family had not fully implemented an internal control structure in accordance with GAO internal control standards and HUD requirements. Specifically, it did not (1) perform a formal, systematic annual risk assessment of its programs and administrative functions, (2) plan and conduct ongoing management control reviews or alternative management control reviews of its programs, (3) establish an overall strategy regarding its risk-based monitoring of program activities and participants, or (4) identify corrective actions required to improve its management controls in a timely manner.

We recommended that HUD ensure that Single Family managers and staff fully implement an acceptable internal control structure by preparing and implementing effective written policies and procedures that comply with the GAO internal control standards and HUD Handbook 1840.1 requirements.


Issue Date: September 4, 2008
Audit Report No.: 2008-LA-0003
File Size: 332.95KB

Title: Implementation Weaknesses Existed in All Major Phases of the FHA Appraiser Review Process

We audited HUD's appraiser review process as part of our annual plan. The audit was proposed in response to a single-family loan origination audit that raised concerns regarding HUD's oversight of FHA appraisers. This is the second of two audits covering HUD's controls over the appraiser review process. The first audit report, 2008-LA-0002, focused on HUD's oversight of the FHA appraiser roster; whereas this audit report focuses on the appraiser review procedures conducted by the homeownership centers and HUD's oversight of the appraiser review process.

We found that HUD's appraiser review process was not adequate to reliably and consistently identify and remedy deficiencies associated with an appraiser. Additionally, HUD did not maintain information necessary to assess the effectiveness of its review process. For each major phase of the appraiser review process we noted problems such as inadequate or incomplete HUD guidance, weak quality controls over implementation of review procedures, and inconsistent application of rating standards and sanctioning timeframes.

We recommend that HUD develop and implement adequate oversight and controls over the appraiser review process to address the weaknesses identified in this report and to ensure that headquarters continuously evaluates the efficiency and effectiveness of the process.


Issue Date: August 27, 2008
Audit Report No.: 2008-NY-0002
File Size: 1.00MB

Title: Weaknesses in the Office of Fair Housing and Equal Opportunity's 2007 Award Process for the Fair Housing Initiative Program, National-Based Media Campaign

We performed a limited scope audit of the Office of Fair Housing and Equal Opportunity to determine whether the Office complied with the requirements of 42 U.S.C. (United States Code) Chapter 45, Subpart I, Section, 3616a(d), entitled Fair Housing Intiatives Program, Education and Outreach, when it published the 2007 Fair Housing Initiatives Program notice of funding availability. The audit disclosed that the Office generally complied with the applicable requirements; however, it issued the 2007 Fair Housing Initiatives Program notice of funding availability with an error related to applicant eligibility and it did not fully document criteria to determine eligibility of the applicant awarded the 2007 Education and Outreach Initiative national program media campaign. This condition occurred because the Office broadly defined who was eligible to apply and did not obtain legal guidance regarding applicants qualifying as nonprofit organizations representing groups protected under the Fair Housing Act. Additionally, the Office of Fair Housing and Equal Opportunity lacked a policy regarding whether a portion of each fiscal year's Education and Outreach Initiative funds were to be used for a national program for Fair Housing Month activities.

We recommend that the Assistant Secretary, Office of Fair Housing and Equal Opportunity, (1) strengthen its internal control procedures regarding the development of future super notices of funding availability to ensure that notice language complies with statutory requirements, (2) obtain guidance on the meaning of a nonprofit organization representing groups of persons protected under the Fair Housing Act, and (3) develop policy on whether funds from each fiscal year's Fair Housing Initiatives Program appropriation is intended to be used for a national program specifically for annual Fair Housing Month activities.


Issue Date: July 29, 2008
Audit Report No.: 2008-FW-0001
File Size: 1.49MB

Title: HUD's Community Development Block Grant Set-Aside for Colonias Was Not Used for Its Intended Purposes

The U. S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's administration of the Community Development Block Grant (CDBG) set-aside for colonias (colonia set-aside). We performed the review because of concerns that surfaced during an audit survey of the state of Texas's colonia set-aside funds. That review showed that HUD had not issued regulations or handbooks that required compliance with Section 916 of the Cranston-Gonzalez National Affordable Housing Act of 1990 (Act). In addition, HUD could not determine whether Texas used its colonia set-aside funds in the most efficient and effective manner or whether it accomplished the intended purposes of providing water and sewage systems to the most needy colonia residents. Our audit objective was to determine whether HUD ensured that the states of New Mexico, Arizona, Texas, and California (states) expended colonia set-aside funds in compliance with the Act.

We found that HUD did not issue regulations or handbooks specific to the administration of the set-aside funds or develop performance measures to track accomplishments. Thus, it did not ensure that the states expended the funds in compliance with the Act and could not track accomplishments. Rather, HUD allowed the states to define colonias and determine how to distribute the funds. The states had different definitions of colonias and did not always prioritize funding to the colonias with the greatest needs as required. As a result, between 2004 and 2007, New Mexico and Arizona allocated or expended more than $8.4 million in colonia set-aside funds for projects that did not meet the requirements of the Act and did not meet the intended beneficiaries' basic health and safety needs. In addition, HUD could not report on the progress or effect of the set-aside funds in meeting the colonia residents' needs regarding water, sewage, and housing.

We recommend that HUD require the states of New Mexico and Arizona to support or repay more than $8.4 million. Further, HUD should implement effective internal controls to ensure that the states comply with the Act and implement performance measures specific to the colonia set-aside to help ensure that funds are used effectively to meet water, sewage, and housing needs of the colonia residents. By implementing effective controls, HUD can put more than $2.8 million to better use over the next 12 months.


Issue Date: July 23, 2008
Audit Report No.: 2008-DP-0006

Title: Review of HUD’s Information Technology Security Program
(Report Not Available to the Public)

We have completed a review of HUD’s information technology security program. The overall objective of our audit was to evaluate HUD’s entity-wide information security program’s compliance with FISMA requirements. Specifically, we evaluated the overall quality of HUD’s certification and accreditation process for its systems; HUD program officials and system owners’ implementation of their assigned information security responsibilities; and whether HUD’s Office of the Chief Information Officer developed security policies and implemented and monitored enterprise-wide controls. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Issue Date: July 21, 2008
Audit Report No.: 2008-DP-0005

Title: Review of Controls Over the Removal of Local and Remote User Access
(Report Not Available to the Public)

We audited the U.S. Department of Housing and Urban Developments’ (HUD) processes and controls to remove the computer system access rights of retired employees. This audit was initiated based upon work performed during our fiscal year 2007 review of information system controls in support of the annual financial statement audit. The OIG has determined the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to select HUD officials.


Issue Date: July 15, 2008
Audit Report No.: 2008-KC-0005
File Size: 51.02KB

Title: HUD’s Office of Multifamily Housing Generally Met Requirements While Administering the Opt-Out Process for Section 8 Projects

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed HUD's oversight of projects that opted out of the Section 8 program between January 1, 2004, and December 31, 2007. We reviewed the opt-out process because it involved large amounts of funds potentially not accounted for or remitted to HUD.

With a few minor exceptions, HUD complied with applicable requirements while administering the opt-out process for the nine Section 8 projects in our sample. In addition, for all nine projects, the responsible depository properly remitted residual receipts to HUD or released the residual receipts to the project owners, or the balance in the residual receipts account was zero so no action was required.

We communicated the minor exceptions to HUD in a separate management letter. Since we did not identify any significant deficiencies, the report contains no recommendations.



Issue Date: June 24, 2008
Audit Report No.: 2008-KC-0004
File Size: 295.58KB

Title: HUD’s Office of Single Family Housing Could Improve the Reliability of Its Process for Reporting Performance Measure Results

We concluded that Single Family could improve the reliability of its process for reporting performance measure results. Single Family has a performance measurement process in place; however, it could make the process more reliable if it routinely evaluated data used for performance measure results and formally documented its structure and process for developing, monitoring, and reporting on performance measures.

We recommended that HUD establish and implement effective written policies and procedures for routinely evaluating the data used to report performance measure results to ensure that the data are the most accurate and appropriate data available. We also recommended that HUD establish and implement effective written policies and procedures for developing, monitoring, and reporting on performance measures.


Issue Date: June 12, 2008
Audit Report No.: 2008-DP-0004
File Size: 802.33KB

Title: Review of Selected FHA Major Applications’ Information Security Controls (Report Not Available to the Public)

We audited the Federal Housing Administration’s (FHA) management of its information technology resources and compliance with U.S. Department of Housing and Urban Development (HUD) and other federal information security requirements. Our overall objective was to determine whether FHA effectively managed security controls relating to its information technology resources. This audit supported our financial statement audits of FHA and HUD as well as our annual Federal Information Security Management Act review. The OIG has determined that the contents of this report would not be available for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Issue Date: May 21, 2008
Audit Report No.: 2008-BO-0002
File Size: 337.20KB

Title: Maintenance of Effort Requirements Are Needed to Ensure Intended Use of CDBG Program Funds

As part of the Office of Inspector General (OIG) annual goals for internal audits, we reviewed U.S. Department of Housing and Urban Development (HUD) policies prohibiting the use of funds from the Community Development Block Grant (CDBG) program to supplant general government funds. Congress stated in a 2006 House congressional report that CDBG funds were never meant “to be used to replace local general government funds on projects communities should underwrite, regardless of whether grant dollars are available” and that “[t]he congressional prohibition against supplanting notwithstanding, HUD lacks the ability to determine whether funds are supplanted for general revenue funds because it does not collect the necessary data.”

Our objective was to determine whether the HUD Office of Community Planning and Development (CPD) had management controls that were sufficient to ensure that CDBG grantees had effective procedures to preclude them from supplanting general government funds with CDBG program funds. We also examined whether there were practical ways to measure whether grantees used CDBG program funds to supplant general state or local government funds and indicators that grantees might be using federal program funds to supplant general government funds.

HUD could not identify whether federal funds were used to supplant general government funds because it had not implemented management controls to provide assurances that CDBG grantees did not supplant their local budgets with CDBG program funds. Specifically, HUD could not identify whether a grantee supplanted its local budget because it had not identified the requirements for maintenance of effort included in the Housing and Community Development Act of 1974 (HCDA), either in policy or CDBG program regulations.

According to CPD program officials and as discussed in a 1980 U.S. Government Accountability Office (GAO) report, when the program was implemented, there was a consensus that the requirement for maintenance of effort was difficult, if not impossible, to enforce because it called for an external judgment on what grantees would have done if federal funds were not available. However, GAO has reported more recently on the maintenance of effort requirements, and also other federal agencies have established maintenance of effort requirements, ways to measure compliance, and indicators of noncompliance. HUD indicated that it was taking initial steps by discussing the requirement with its grantees but that this activity was not a high priority. However, without maintenance of effort management controls, CDBG program funds may be at risk for substitution by grantees.

HUD should initiate efforts to address and establish maintenance of effort requirements and continue its dialogue with its grantees to consider stakeholder input for establishing maintenance of effort compliance requirements and determine whether to or how to implement maintenance of effort requirements for the program after consideration of stakeholders’ input.


Issue Date: May 14, 2008
Audit Report No.: 2008-AT-0003
File Size: 162.37

Title: HUD Lacked Adequate Controls over the Physical Condition of Section 8 Voucher Program Housing Stock

As part of the U.S. Department of Housing and Urban Development (HUD), Office of the Inspector General’s (OIG) strategic plan, we audited HUD’s controls over the physical condition of Section 8 housing stock for the Housing Choice Voucher program. Our objective was to determine whether HUD had adequate controls to ensure that its Section 8 housing stock was in material compliance with housing quality standards.

We found that HUD did not have adequate controls to ensure that its Section 8 housing stock was in material compliance with housing quality standards. This condition occurred because HUD had not fully implemented its Section 8 Management Assessment Program. As a result, it could not ensure that the primary mission of the Section 8 program, paying rental subsidies so that eligible families can afford decent, safe, and sanitary housing, was met. In addition, HUD’s lack of knowledge regarding the condition of its Section 8 housing stock resulted in inflated performance ratings for public housing agencies administering the program. Consequently, HUD routinely rated some agencies as being high performers when a significant percentage of the units they administered were in material noncompliance with housing quality standards. HUD was revising its Section 8 regulations. These revisions included developing a physical inspection system to help ensure that HUD’s Section 8 housing stock is in material compliance with housing quality standards.

Our recommendations included completion of the departmental clearance process of the proposed revised Section 8 regulations by the end of fiscal year 2008, allowing the proposed revisions to Section 8 Management Assessment Program and housing quality standards to go through the proper process and carefully consider all questions and comments made by the affected parties (HUD Office of Public and Indian Housing staff, tenants, landlords, Real Estate Assessment Center, HUD OIG, etc.) before publishing the final rule, and fully developing and implementing a physical inspection system for the tenant-based Housing Choice Voucher program within three years of the issue date of this report.


Issue Date: May 12, 2008
Audit Report No.: 2008-AT-0802
File Size: 141.31KB

Title: Corrective Action Verification Opelika Housing Authority Public Housing Programs

HUD OIG performed a corrective action verification of audit recommendations cited in the audit report, Opelika Housing Authority, Public Housing Programs (2004-AT-1011) issued July 23, 2004. The purpose of the corrective action verification was to determine whether the selected audit recommendations were implemented and the deficiencies cited in the report were corrected. The Authority implemented the necessary corrective action for the recommendations. As a result, the recommendations are resolved and no further action is required.

The Authority's Section 8 general ledger contained a receivable in the amount of $57,900, due from Opelika Housing Development Corporation a not-for-profit corporation affiliated with the Authority,. The receivable represents ineligible Section 8 payments made to the Opelika Housing Development Corporation by the Section 8 program. HUD recovered the ineligible payments during 2005 through offset of Section 8 administration fees from the Authority's Section 8 program. However, the Opelika Housing Development Corporation did not reimburse the Authority for the ineligible payments.

OIG recommended that the Director of HUD's Birmingham Office of Public Housing require the Authority to collect $57,900 from the Opelika Housing Development Corporation.



Issue Date: April 24, 2008
Audit Report No.: 2008-AT-0002
File Size: 189.42KB

Title: The Miami Dade Housing Agency, Miami, Florida, Did Not Maintain Adequate Controls over Its Capital Fund Program

HUD-OIG audited the Miami Dade Housing Agency (Agency) capital fund program. The objective of the audit was to determine whether the Agency had adequate controls to ensure that contracts were awarded in accordance with regulations and U.S. Department of Housing and Urban Development (HUD) requirements.

The Agency did not have adequate controls to ensure that contracts were awarded in accordance with regulations and HUD requirements. It did not maintain documentation supporting that contracts were awarded with full and open competition. This condition occurred because the Agency did not have effective internal controls for documenting the procurement process and disregarded federal procurement requirements. As a result, it could not ensure that more than $12.1 million for contract payments was awarded through full and open competition and that the costs were reasonable. In addition, the Agency did not properly support multiple drawdowns of capital funds. It drew down capital funds from HUD to reimburse itself for expenses associated with 2003 and 2004 capital fund program grants. It then transferred these expenses to close out a 2002 capital fund program grant and drew down additional capital funds from HUD using these same expenses as justification. It could not provide documentation to support that HUD was reimbursed for the excess funds used to close out the grant. This condition occurred because the Agency did not have effective controls in place to track excess funds that needed to be returned to HUD. As a result, we have no assurance that excess funds of more than $1.8 million were repaid to HUD.

OIG recommended that HUD require the Agency to (1) provide supporting documentation to justify the eligibility and reasonableness of more than $12.1 million disbursed for five contracts and to Miami Dade County (County) for seven transactions or reimburse the capital fund program more than $2.2 million and the HOPE VI program almost $9.9 million from nonfederal funds, (2) ensure that federal procurement requirements for maintaining supporting documentation are implemented and enforced, and (3) ensure that any services obtained through the County are purchased in compliance with federal procurement requirements. In addition, HUD should require the Agency to (1) provide documentation to support that the excess drawdown of more than $1.8 million was returned to HUD or reimburse the capital fund program from nonfederal funds; (2) develop a system to track excess drawdowns and reimbursement of capital funds to HUD and maintain supporting documentation for both; (3) hire an independent accounting firm to reconcile capital fund program grants between HUD's Line of Credit Control System and the Agency financial system; and (4) incorporate the tracking system, maintenance of supporting documentation, and the reconciliation of capital fund program grants into existing procedures.


Issue Date: April 14, 2008
Audit Report No.: 2008-KC-0003
File Size: 189.17KB

Title: Enterprise Income Verification Users Did Not Always Take Advantage of HUD’s Training and Guidance

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited HUD’s Enterprise Income Verification (EIV) system. HUD implemented the EIV system nationwide for public housing authorities to use to identify and reduce tenant income and subsidy errors within the Section 8 and public housing programs. Our objective was to determine whether HUD provided adequate guidance and training to its EIV coordinators and housing authority users.

We found that HUD provided adequate guidance and training to its EIV coordinators and housing authority users. However, EIV users did not always take advantage of HUD’s EIV training and guidance. Since use of EIV is not yet mandatory, HUD did not require housing authorities to ensure that their users take EIV training prior to granting them access to the EIV system. As a result, housing authority users may not fully understand EIV’s capabilities and their responsibilities when using the system.

We recommend that the Deputy Assistant Secretary for Public Housing and Voucher Programs consider enhancing existing requirements to require housing authorities to certify that their EIV users have received EIV training prior to granting access to the EIV system. The housing authorities would keep the certifications on file and have them available for review.


Issue Date: March 28, 2008
Audit Report No.: 2008-AO-0801
File Size: 238.07KB

Title: Review of Duplication of Participants Benefits under HUD’s Katrina Disaster Housing Assistance Program and Disaster Voucher Program

We audited the U.S. Department of Housing and Urban Development’s (HUD) Katrina Disaster Housing Assistance Program (KDHAP) and Disaster Voucher Program (DVP) administered by various public housing agencies. Our audit objective was to determine whether HUD established controls to ensure that the Housing Authority of New Orleans (HANO) pre-Hurricane Katrina Housing Choice Voucher program participants did not receive duplicate assistance under KDHAP and/or DVP.

We determined that in most cases HUD ensured that KDHAP/DVP participants receiving assistance were not also receiving assistance under HANO’s Housing Choice Voucher program. However, in a few instances (4 of 51), the participants received duplicate assistance. In all four cases, this occurred because HUD allowed Housing Choice Voucher Homeownership program (Homeownership program) participants to execute and receive KDHAP/DVP payments on their behalf while continuing to receive mortgage payments under the Homeownership program. HANO has continued to pay participants Homeownership program assistance payments after Hurricane Katrina to avoid placing the participants into foreclosure. Since the Housing Choice Voucher and KDHAP/DVP program regulations prohibit families from receiving assistance while receiving another housing subsidy or receiving assistance for more than one unit or a unit in which they do not reside, $13,147 in Homeownership program funds was misspent. In addition, two of the four participants also received Community Development Block Grant (CDBG) funding totaling $161,090 to rebuild their property, and the other two applied for assistance but had not received it as of October 2007. Finally, all four participants had also received duplicate rental assistance funding from FEMA totaling $14,655 as of September 2006. In addition, there is a risk that additional duplicate participants exist that were not detected by our testing methodology, as Social Security number information in HANO's register was not always reliable.

We recommend that the HUD’s Director of Housing Choice Voucher Programs take appropriate actions to recover the ineligible funding totaling $13,147 for four duplicate participants, prevent duplicate payments by working with the lenders to rework the mortgages and suspending payment or seek a waiver for the duplicate payment prohibition for Homeownership program participants, and work with FEMA and HUD’s Office of Community Planning and Development to ensure that their assistance did not duplicate HUD’s rental assistance and recover any ineligible duplicate assistance payments, which currently totals $14,655.


Issue Date: March 26, 2008
Audit Report No.: 2008-PH-0001
File Size: 120.37KB

Title: HUD's Process for Tracking the American Dream Downpayment Initiative Had Weaknesses

As part of our strategic plan, we audited the United States Department of Housing and Urban Development's (HUD) American Dream Downpayment Initiative (Initiative). Our audit objective was to determine whether HUD had adequate controls to ensure that its grantees did not exceed allowable downpayment assistance limits and that funds were used as required.

HUD had controls in place to ensure that grantees did not exceed allowable downpayment assistance limits and that funds were used as required, but the control had weaknesses. Specifically, HUD relied heavily on its Integrated Disbursement and Information System, which did not have adequate capability to specifically track the Initiative's activities. Further, regardless of the total amount of downpayment assistance provided to the homebuyers reported via the system, the accomplishment reports prepared by HUD and used to report the total amount of the Initiative's funding disbursed always reflected the grantees' budgeted funding limits. If grantees exceeded downpayment assistance limits, HUD charged the excessive amount to the participating jurisdiction's HOME Investment Partnerships Act formula allocation.

We recommend that HUD perform periodic analyses to ensure that information reflected on the Initiative's accomplishment reports is accurate and coincides with the grantees' HUD-approved consolidated plans. If any of the reported information is found to be inaccurate, HUD needs to correct the appropriate reports and monetary figures.


Issue Date: March 24, 2008
Audit Report No.: 2008-KC-0002
File Size: 333.99KB

Title: HUD Did Not Ensure That Housing Authorities Properly Administered the Community Service and Self-Sufficiency Requirement

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's community service and self-sufficiency requirement (the requirement) as a result of news media reports that the requirement is rarely enforced. Our audit objective was to determine whether HUD ensured that housing authorities properly administered the requirement.

We found that HUD did not have adequate controls to ensure that housing authorities properly administered the requirement. Specifically, HUD did not have sufficient guidelines, adequate data collection and reporting systems, or effective enforcement mechanisms. Of 68 statistically selected households, 44 households did not comply with the requirement and were, therefore, ineligible for continued occupancy. Based on these results, we estimate that housing authorities improperly renewed or extended the leases of at least 85,000 ineligible households costing an estimated $21.5 million in monthly operating subsidies.

We recommend that HUD improve its controls to ensure that housing authorities properly administer the requirement, resulting in more than $257 million being put to better use annually. We also recommend that HUD require housing authorities to take corrective action against the 44 ineligible households identified as part of our statistical sample review.


.Issue Date: March 4, 2008
Audit Report No.: 2008-DP-0003
File Size: 1.07MB

Title: Fiscal Year 2007 Review of Information Systems Controls in Support of the Financial Statements Audit
(Report Not Available to the Public)

We reviewed general and application controls for selected information systems to assess management controls over the U.S. Department of Housing and Urban Development’s (HUD) computing environments as part of the Office of Inspector General’s (OIG) audit of HUD’s financial statements for fiscal year 2007 under the Chief Financial Officer’s Act of 1990. Our review was based on the Government Accountability Office (GAO) "Federal Information Systems Controls Audit Manual" and information technology guidelines established by the Office of Management and Budget (OMB), and the National Institute of Standards and Technology (NIST).

We found weaknesses and deficiencies in controls that stem from HUD’s noncompliance with (i) requirements for internal controls established by OMB, (ii) guidance issued by NIST for securing information systems, and (iii) HUD’s own policies and procedures. We recommend that HUD take steps to ensure compliance with OMB requirements, NIST guidelines, and HUD's own internal policies and procedures.


Issue Date: March 4, 2008
Audit Report No.: 2008-LA-0002
File Size: 948.86KB

Title: HUD Did Not Have Adequate Internal Controls over Its FHA Appraiser Roster

We audited HUD's controls over the FHA appraiser roster in response to a single-family loan origination audit that had raised concerns about FHA appraisers and appraisals. We reviewed HUD's appraiser roster (roster) to determine whether HUD's controls over the roster were adequate to ensure that only qualified/eligible appraisers were placed on the roster and whether the oversight and maintenance of the roster were sufficient to ensure that only currently eligible appraisers remained on the roster. HUD had significant weaknesses in its internal controls used to maintain the roster. These weaknesses caused the roster to contain unreliable data which included the listing of 3,480 appraisers with expired licenses and 119 appraisers that had been state sanctioned. Additionally, 28 of the appraisers listed with expired licenses and eight of the sanctioned appraisers conducted appraisals.

Specifically, HUD

• Did not conduct roster quality control reviews in accordance with its written roster quality control plan;
• Did not perform regular monitoring of the roster to ensure data reliability;
• Instructed and/or approved its contractor to use logic statements when developing the software program that updates the roster, which were not in accordance with HUD regulations and did not always work properly; and
• Did not retain initial application packages for all active appraisers listed on its roster as required by HUD's record disposition schedule.

We recommend that HUD implement stronger internal controls to ensure that only eligible appraisers are placed on its roster and that oversight and maintenance of the roster are sufficient to ensure that only eligible appraisers remain on the roster.


Issue Date: February 14, 2008
Audit Report No.: 2008-BO-0001
File Size: 77.63KB

Title: Office of Multifamily Housing Boston Hub Staff Effectively Used Contract Fee Inspectors

We reviewed the use of contract fee inspectors by the Office of Multifamily Housing Boston Hub (Boston Hub) as part of our 2007 annual audit plan. This review was initiated because U.S. Department of Housing and Urban Development (HUD) staff rely on contract fee inspectors to oversee the work of contractors performing renovation work on HUD-insured properties. Our objective was to determine whether the Boston Hub effectively used contract fee inspectors to monitor and oversee contractors renovating HUD-insured properties located within the Boston Hub in Region 1.

Our audit did not disclose any indication that the Boston Hub did not use contract fee inspectors effectively to monitor and oversee contractors renovating HUD-insured properties located within the Boston Hub in Region 1. The audit also did not disclose any indication that the internal control structure for monitoring renovations was not effective. We did identify a minor deficiency, which was communicated separately through a memorandum, dated February 14, 2008, to the Acting Director of the Boston Hub.

Based on our audit, we did not identify any reportable conditions or deficiencies; therefore, we are not making any recommendations.


Issue Date: February 11, 2008
Audit Report No.: 2008-AT-0801
File Size: 327.85KB

Title: Corrective Action Verification Miami-Dade Housing Agency Did Not Ensure Section 8-Assisted Units Met Housing Quality Standards, Audit Report 2006-AT-1001

HUD OIG performed a corrective action verification of the audit recommendations cited in the audit report, Miami-Dade Housing Agency (Agency) Did Not Ensure Section 8-Assisted Units Met Housing Quality Standards (2006-AT-1001) issued December 21, 2005. The purpose of the corrective action verification was to determine if the selected audit recommendations were implemented and the deficiencies reported in the audit report corrected.

The Agency disregarded the management decisions and did not implement the promised corrective action. The Agency did not correct the housing quality standards violations we cited in our prior audit and failed to implement its revised Section 8 administrative plan. As a result, the deficiencies reported in our audit report were not corrected, and the Agency continued to violate HUD requirements.

OIG recommended and HUD agreed with reopening recommendations 1A and 1B from our previous audit report 2006-AT-1001 because the Agency did not implement the agreed upon corrective actions.



Issue Date: January 14, 2008
Audit Report No.: 2008-KC-0001
File Size: 307.43KB

Title: HUD’s Quality Assurance Division Did Not Always Resolve Materially Deficient or Potentially Fraudulent Loans Consistently

HUD OIG audited the U.S. Department of Housing and Urban Development's (HUD) Quality Assurance Division because the results of some previous OIG audits indicated that the Quality Assurance Division might not have consistently followed its requirements.

Our objective was to determine whether HUD's Quality Assurance Division consistently required Federal Housing Administration (FHA)-approved lenders to indemnify loans with similar material deficiencies and whether it appropriately handled potentially fraudulent loans.

We concluded that HUD's Quality Assurance Division did not always resolve materially deficient or potentially fraudulent loans consistently. As a result, HUD increased its risk of treating lenders differently in similar situations. In addition, OIG did not have the opportunity to pursue actions against parties responsible for fraudulent loans, and the FHA insurance fund incurred unnecessary losses and remains at risk for additional losses on fraudulent loans.

We recommended that HUD develop and implement effective policies and procedures to ensure uniform resolutions to loan underwriting deficiencies and handling potentially fraudulent loans. We also recommended that HUD coordinate with OIG to reevaluate the agreement between HUD and OIG regarding referring potentially fraudulent loans to OIG. Further, we recommended that HUD require lenders to indemnify 16 insured loans that contained evidence of fraud.


Issue Date: January 10, 2008
udit Report No.: 2008-AT-0001
File Size: 240.82KB

Title: The Atalanta Office of Public and Indian Housing Did Not Ensure That the Housing Authority of DeKalb County Accurately Implemented Its Memorandum of Agreement

As part of HUD OIG's strategic plan, an audit was conducted of HUD's Atlanta Office of Public and Indian Housing oversight of the Housing Authority of DeKalb County's compliance with its memorandum of agreement. The primary objective was to determine whether Public Housing adequately monitored the Authority's implementation of operating improvements required in the agreement. Specifically, the objective was to determine whether Public Housing management controls and oversight processes used to monitor the implementation of the agreement were adequate.

Public Housing did not ensure that the Authority accurately implemented its agreement. The Authority did not implement some tasks related to financial management and procurement. As a result, the Authority was released from its agreement without fully completing and implementing it. Thus, HUD could not be assured that the Authority's public housing program was managed in a manner consistent with sound financial practices.

OIG recommended that the Deputy Assistant Secretary for Public and Indian Housing Field Operations perform a comprehensive review of the procurement function at the Authority to ensure the procurement function is operating in accordance with federal and state regulations, and perform either staff or independent public accountant on-site review of the financial management internal controls to ensure that the Authority has adequate financial internal controls regarding the disbursement of funds prior approval.


Issue Date: December 31, 2007
Audit Report No.: 2008-NY-0001
File Size:1.68MB

Title: HUD's Monitoring Controls and Procedures Regarding the Community Development Block Grant Program Were Not Adequate

We audited the U.S. Department of Housing and Urban Development's (HUD) administration of the Community Development Block Grant (CDBG) program. Our audit objectives were to determine whether HUD (1) had a system to measure the impact and outcome of its significant investment in grantees, which specifically determined whether (a) investments demonstrated increases in neighborhood health and (b) the primary CDBG objective of developing viable urban communities was attained, and (2) had implemented a system to measure the impact of its monitoring efforts for improving grantee performance and effectiveness.

HUD performance measurements did not demonstrate how grantees were increasing neighborhood health and attaining the primary CDBG objective of developing viable urban communities. In addition, while HUD monitoring of CDBG entitlement communities identified numerous grantee deficiencies and offered meaningful recommendations for corrective actions, grantee performance had often not improved over time.

We recommend that HUD's Office of Community Planning and Development (CPD) implement a system to measure the impact of its monitoring efforts for improving grantee performance and effectiveness. Specifically, we recommend that HUD design a performance measurement system that allows HUD to report meaningful outcomes and not just outputs. HUD needs to design a ranking and rating system for individual grantees so that HUD and its stakeholders can identify and address both good and poor performance. Further, we recommend that HUD establish controls to ensure that CPD monitoring efforts emphasize high-impact activities so that recommendations can focus on promoting improvements in program participants' performance. Also, HUD should assess the impact of its CPD monitoring on performance and increase incentives to improve grantee performance and compliance by using all of its available sanction authority.


Issue Date: December 4, 2007
Audit Report No.: 2008-AO-0001
File Size: 722.28KB

Title: HUD Had a Less Than 1 Percent Error Rate in Housing Ineligible Participants for KDHAP and DVP Disaster Housing Assistance

We audited the U.S. Department of Housing and Urban Development’s (HUD) Katrina Disaster Housing Assistance Program (KDHAP) and Disaster Voucher Program (DVP) administered by public housing agencies. We initiated the audit as part of our examination of relief efforts provided by the federal government in the aftermath of Hurricanes Katrina and Rita. Our audit objectives were to determine whether HUD (1) properly determined the eligibility of KDHAP/DVP participants and (2) implemented adequate measures to prevent KDHAP/DVP participants from receiving duplicate housing assistance from other HUD housing programs.

HUD did not always ensure that only eligible KDHAP/DVP participants received disaster housing assistance. This condition occurred because during its development of the Disaster Information System, HUD included names of participants who were not residing in HUD-assisted dwellings immediately before the Hurricane Katrina evacuation. In addition, HUD did not specify in the family eligibility requirements for KDHAP/DVP that families with regular vouchers that were searching for housing but never had a housing assistance payments contract executed on their behalf in the disaster area were ineligible for these programs. As a result, as of August 31, 2007, $760,317 in federal funds had been misspent for 84 KDHAP/DVP participants who were ineligible for disaster assistance. If ineligible costs continue to be incurred, HUD could spend an additional $153,808 on ineligible participants from September 2007 to the end of the program. However, these 84 participants count as less than 1 percent of the total number of participants according to the KDHAP Information System.

We will report the results of our review regarding the adequacy of HUD’s measures to prevent duplicate housing assistance in a separate audit report.

We recommend that HUD’s Director of Housing Voucher Programs take appropriate actions deemed necessary to recover or write off the $760,317 in federal funds that was misspent on 84 ineligible participants, immediately cease paying funding on the participants ineligible for KDHAP and/or DVP to prevent misspending $153,808 in federal funds, and take appropriate actions to remove any other ineligible participants from the Disaster Information System.


Issue Date: November 14, 2007
Audit Report No.: 2008-FO-0003
File Size: 489.25KB

Title: Additional Details to Supplement Our Report on the U.S. Department of Housing and Urban Development's Fiscal Years 2007 and 2006 Financial Statements

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 2007 and 2006 Financial Statements, which is included in HUD's Fiscal Year 2007 Performance and Accountability Report.

In OIG'S opinion, based on our audit and the reports of other auditors, the financial statements were presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.

The report identifies (a) two material weaknesses, (b) eight significant weaknesses, and (c) one instance of noncompliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate the deficiencies noted, and makes recommendations for corrective actions. During the course of the audit, OIG also identified several matters that are not material to the financial statements and are being reported separately to HUD management.


Issue Date: November 8, 2007
Audit Report No.: 2008-FO-0002
File Size: 7.21MB

Title: Audit of the Federal Housing Administration’s Financial Statements for Fiscal Years 2007 and 2006

This report presents the results of Urbach Kahn and Werlin LLP's audit of the Federal Housing Administration's (FHA) financial statements for the years ended September 30, 2007 and 2006.

In Urbach Kahn and Werlin's opinion, FHA's principal financial statements are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America.

The report identifies three significant deficiencies. Two of those significant deficiencies, relating to FHA's Home Equity Conversion Mortgage system and subsidy cash flow model, are considered to be material weaknesses. The report did not identify any instances of non-compliance with laws and regulations. During the course of the audit, Urbach, Kahn, and Werlin also noted other matters that are not material to the financial statements and are being separately communicated to FHA management.


Issue Date: November 7, 2007
Audit Report No.: 2008-FO-0001
File Size: 358.62KB

Title: Audit of the Government National Mortgage Association’s (Ginnie Mae) Financial Statements for Fiscal Years 2007 and 2006

This report presents the results of Carmichael, Brasher, Tuvell and Company's audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the years ended September 30, 2007 and 2006.

In Carmichael, Brasher, Tuvell and Company's opinion, the financial statements present fairly, in all material respects, the financial position of Ginnie Mae as of September 30, 2007 and September 30, 2006 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

In addition to Carmichael, Brasher, Tuvell and Company's unqualified opinion on Ginnie Mae's financial statements, the audit report contains one significant deficiency in Ginnie Mae's internal controls and no material weaknesses or reportable instances of noncompliance with laws, regulations, and provisions of contracts. Carmichael, Brasher, Tuvell and Company noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae's management.


Issue Date: November 5, 2007
Audit Report No.: 2008-LA-0001
File Size: 1.28MB

Title: The Los Angeles Multifamily Hub Did Not Properly Monitor Its Performance-Based Contract Administrator, Los Angeles LOMOD

We audited the Los Angeles Multifamily Hub's monitoring of its annual contributions contract with its performance-based contract administrator (contractor), Los Angeles LOMOD (LOMOD). Our overall audit objective was to determine whether the U.S. Department of Housing and Urban Development (HUD) appropriately monitored LOMOD with respect to the annual contributions contract. The Los Angeles Multifamily Hub did not properly monitor its contractor. The Los Angeles Multifamily Hub did not follow up on the findings in its 2004 annual compliance review of LOMOD in a timely manner, it made inappropriate decisions regarding the assessment and reversal of disincentives, inappropriately moved LOMOD to the "full implementation" stage of its contract for two required performance standards (activities) without properly supporting the decision, improperly allowed retroactive rent increases, and did not monitor LOMOD's activities with regard to the performance standard relating to review of monthly vouchers. We recommend that LOMOD not be reimbursed for the $105,059 reduction in incentive fee for those findings in the 2004 compliance review that were improperly reversed; that HUD assess $1,360,160 in disincentives against LOMOD for incorrect work products; that HUD monitor LOMOD's rent adjustment and contract renewal transactions under standards 3 and 14 until HUD can ensure that LOMOD has met the acceptable quality level for three consecutive months; and that HUD begin monitoring LOMOD under standard 6 relating to the review, authorization, and payment of monthly vouchers to owners so that it doesn't put $13.6 million at risk each month.


Issue Date: October 31, 2007
Audit Report No.: 2008-DP-0002
File Size: 867.04KB

Title: Review of FHA Controls over Its Information Technology Resources
(Report Not Available to the Public)

We audited the Federal Housing Administration’s (FHA) management of its information technology resources and compliance with U.S. Department of Housing and Urban Development (HUD) and other federal information security requirements. Additionally, we assessed FHA efforts to comply with HUD policy to close out all information security vulnerabilities by November 2007. This audit supports our financial statement audits of FHA and HUD as well as our annual Federal Information Security Management Act review. We found that (1) FHA had not implemented the federal information security risk management framework and did not comply with laws, directives, executive orders, policies, standards, or regulations; (2) FHA has made progress in meeting the November deadline to close out known information technology security vulnerabilities and update required security documents; and (3) HUD had not fully implemented an information security program to provide a full range of role-based training needed by FHA application system owners to assume the system owner responsibilities stated in HUD’s policy.

We recommend that the Assistant Secretary for Housing (1) align FHA’s information security line of delegation and accurately define roles to ensure that security controls are effectively implemented; (2) address and eliminate known security vulnerabilities; and (3) identify the resources needed to provide the necessary security for its applications and ensure that staff with significant information security responsibilities obtain necessary training to assume assigned information security roles and responsibilities. We recommend that the Office of the Chief Information Officer complete the implementation of its security program by establishing a role-based training program for staff with specific security responsibilities and implement additional tools and forums to provide system owners the access needed to ensure that their data and systems are protected.


Issue Date: October 23, 2007
Audit Memorandum No.: 2008-NY-0801
File Size: 59.61KB

Title: Community Development Block Grant, Disaster Recovery Assistance Funds, Lower Manhattan Development Corporation, New York, New York

During the ninth in our series of on-going audits of the Lower Manhattan Development Corporation's (LMDC) administration of the $2.783 billion of Community Development Block Grant Disaster Recovery Assistance funds provided to the State of New York following the September 11, 2001, terrorist attacks on the World Trade Center in New York City, we noted that the final action plan approved by the U.S. Department of Housing and Urban Development (HUD) on December 6, 2006 did not always specify projects to which funds were to be allocated, nor identify alternative funding sources for some of the activities. While we recognize that the final action plan was prepared and approved at a time when the operation of LMDC as a going concern was in question, which may have resulted in the lack of specifics on certain projects, this question appears to have been resolved for the immediate future. Consequently, the lack of specifics in the final action plan as approved will lessen HUD's ability to evaluate the extent to which future disbursements are in accordance with the approved final action plan. In addition, the lack of information on the nonfederal sources of funding for the World Trade Center Memorial/Museum project lessens HUD's assurance that the funds will be available and that the project will be successfully completed as envisioned.

We recommend that HUD's general deputy assistant secretary for community planning and development instruct LMDC to (1) provide specifics for HUD review for the activities and outcomes expected as a result of the funding approved in the final action plan for the affordable housing, economic development, education, and transportation projects, and (2) identify the amount of private and nonfederal public resources available to date that are reasonably expected to be available for the completion of the World Trade Center Memorial/Museum to ensure that the allocated federal funds will sufficiently leverage those additional resources.


Issue Date: October 19, 2007
Audit Report No.: 2008-DP-0801

Title: Review of Unisys Performance and Security Controls
(Report Not Available to Public)

We completed an audit of the U.S. Department of Housing and Urban Development’s security and performance controls over the Unisys 2200 operating system on which financial systems reside. The objective of our audit was to determine whether operational, technical and management controls are in place and adequately protect HUD's data and resources. This audit was conducted as a component of the general and technical controls for information systems in connection with the annual (i) audit of HUD’s consolidated financial statements audit and (ii) evaluation of HUD’s information systems security program and practices required by the Federal Information Security Management Act of 2002.

We found that HUD is not in full compliance with applicable federal laws and guidelines and that operational, technical, and management deficiencies exist in implementing effective security and performance controls over the Unisys 2200 operating system. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Calendar Year 2007

Issue Date: September 29, 2007
Audit Report No.: 2007-CH-0001
File Size: 162.66KB

Title: The U.S. Department of Housing and Urban Development Did Not Fully Implement Succession Planning

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General reviewed HUD's management of human resources. We initiated the review based on our annual audit plan and our strategic plan to help HUD resolve its major management challenges. Our objective was to determine whether HUD initiated adequate succession planning to address future staffing concerns. This is the first of three audit reports on HUD’s management of its human resources.

HUD had not fully initiated adequate succession planning to address future staffing concerns. Specifically, two of the five program offices reviewed, failed to identify and/or support the actions taken to fully implement HUD’s succession plan. However, three program offices initiated adequate succession planning. As a result, HUD cannot be assured that, when key members of its workforce retire over the next several years, they will be succeeded by qualified employees with the skills, knowledge, and abilities needed to continue its mission.

We recommend that the Assistant Secretary for Administration ensure that HUD implements adequate procedures and controls to ensure that its program offices initiate succession planning to comply with its succession plan.


Issue Date: September 28, 2007
Audit Report No.: 2007-DP-0801
File Size: 246.13KB

Title: OIG Response to Questions from the Office of Management and Budget Under the Federal Information Security Management Act of 2002

The Federal Information Security Management Act of 2002 (FISMA) directs the Office of the Inspector General (OIG) to perform an annual independent evaluation of the U.S. Department of Housing and Urban Development's (HUD) information security program and practices. This memorandum presents the results of the OIG's evaluation of HUD’s compliance with FISMA. The OIG has determined that the contents of this memorandum would not be appropriate for public disclosure and has therefore limited its distribution to selected officials.


Issue Date: September 28, 2007
Audit Report No.: 2007-FW-0001
File Size: 217.71KB

Title: Overpayments in the Housing Choice Voucher Program

We conducted a nationwide audit of the Housing Choice Voucher program. We wanted to determine the extent to which public housing agencies paid excessive subsidies for families that were housed in rental units with more bedrooms than authorized. For purposes of this report, we defined this condition as "overhousing." We also wanted to identify the causes of such overhousing and to evaluate HUD's approach to reducing the frequency and extent of overpayments that can result. The audit found that public housing agencies nationwide paid excess subsidies totaling an estimated $20 million for more than 16,500 families to reside in assisted units with more bedrooms than people in the family. This occurred because public housing agencies made errors in processing eligibility reexaminations and entering data. In addition, some public housing agencies and HUD staff misunderstood fair housing requirements, resulting in granting unreasonable accommodations. We recommended that HUD issue additional guidance to address evaluating reasonable accommodations requests and submitting accurate data to HUD. We also recommended that HUD incorporate data analysis designed to identify and correct overhousing and related data errors into its risk assessment and monitoring methodologies. By implementing the recommendations, HUD could minimize overhousing in the voucher program and reduce unnecessary program costs by an estimated $20 million annually.


Issue Date: September 24, 2007
Audit Report No.: 2007-KC-0801
File Size: 35.57KB

Title: Lenders Submitted Title II Manufactured Housing Loans for Endorsement without the Required Foundation Certifications

As part of HUD-OIG's audit to determine whether FHA insured Title II manufactured housing loans were on homes with substandard foundations (OIG Report #2007-KC-0004, dated September 24, 2007), we reviewed 205 FHA loan files for the required engineer's certification of the property foundation. FHA rules require lenders to provide the certification confirming that the foundation complies with FHA requirements.

We found that lenders submitted 21 of those loans for endorsement without submitting the engineer's certification. We recommend that HUD seek indemnifications and recovery of losses incurred from the responsible lenders, unless the lenders can provide the required certifications.


Issue Date: September 24, 2007
Audit Report No.: 2007-KC-0004
File Size: 552.40KB

Title: More Than 80 Percent of Recently Insured Title II Manufactured Housing Loans Are on Homes With Substandard Foundations

HUD-OIG audited the U.S. Department of Housing and Urban Development's (HUD) Title II manufactured housing loan program. We initiated this review because of the high insurance risk to the Federal Housing Administration (FHA) fund that manufactured homes have historically represented, and prior audit observations of foundation deficiencies with FHA-insured homes.

Our objective was to determine whether, and to what extent, FHA insured Title II manufactured housing loans on properties with foundations that did not meet its requirements.

Of the FHA Title II insured manufactured housing loans that closed from 2003 through 2005, at least 50,000 (or more than 80 percent of the financed homes) were installed on substandard foundations. This occurred because current FHA controls cannot be relied on to ensure installers follow required guidelines. As a result, FHA's insurance fund is not adequately protected, homeowner equity and resale values are diminished, and the structural integrity and safety of the homes is questionable.

We recommend that HUD correct program weaknesses to ensure that Title II manufactured housing foundations meet FHA requirements and avoid unnecessary losses to the insurance fund of an estimated $44.9 million within the next year.


Issue Date: September 19, 2007
Audit Report No.: 2007-AT-0001
File Size:556.92KB

Title: HUD Needs to Improve Controls over Its Contract Administration Processes

As part of U.S. Department of Housing and Urban Development (HUD), Office of the Inspector General's (OIG) strategic plan, we audited HUD's contract administration process. Our primary objective was to determine whether HUD had adequate controls to ensure that it effectively and efficiently administered its contracts and ensure that it followed requirements.

While HUD has implemented or is in the process of implementing several improvements, additional improvements are needed. Because HUD did not have adequate controls over some processes, (1) contract statements of work were sometimes poorly written, (2) it did not adequately assess whether there was a continuing need for goods and services, (3) it paid contractors for questioned costs, and (4) it did not properly evaluate or report contractor performance. As a result, for the 17 contracts we reviewed, HUD paid about $8 million for services without obtaining the desired outcome and will spend $900,000 more than necessary by September 30, 2007, for other services that are not needed. In addition, HUD unnecessarily paid about $197,000 for a contract that had an overstated estimated need and then exercised an unnecessary option year for which it will pay the contractor another $250,000.

Our recommendations include implementing initiatives currently planned by the chief procurement officer. These planned actions include, but are not limited to, an acquisition planning policy and the "HUD Procurement Transformation" initiative, including developing a HUD Integrated Acquisition Management System. In addition, we recommend implementing additional policies and procedures that (1) improve HUD's ability to adequately express its needs, provide guidance to contractors, and employ appropriate contracting strategies in its contract statements of work; (2) ensure that the required analyses of contracts are performed to assess the continued need and the cost appropriateness before exercising option periods; (3) provide for the formal review of government technical representatives and government technical monitors; and (4) ensure that staff comply with contractor performance reporting requirements by implementing systems such as automated alerts that notify staff when evaluations are due. Further, HUD should not exercise the final option year for contract C FTW 00398.


Issue Date: September 19, 2007
Audit Report No.: 2007-DP-0007

Title: Network Vulnerability Assessment
(Report Not Available to Public)

We have completed a Network Vulnerability Assessment of HUD. The objective of our audit was to evaluate whether the department’s network security systems, including security controls and practices, adequately protect the integrity, confidentiality, and availability of data and information from unauthorized access to HUD’s systems through the performance of penetration testing. For criteria, we used recommendations from the following Special Publications issued by the National Institute of Standards and Technology: National Institute of Standards and Technology Special Publication (NIST SP) 800-42, “Guideline on Network Security Testing,” SP 800-44 “Guidelines on Securing Public Web Servers;” National Institute of Standards , Technology Special Publication (NIST SP) 800-40, “Procedures for Handling Security Patches,” and requirements for The Federal Information Security Management Act of 2002. We concluded from our assessment that, Although HUD has implemented controls to protect its network from external intruders, internal testing identified security configuration and technical control deficiencies. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Issue Date: August 28, 2007
Audit Report No.: 2007-DP-0006
File Size: 2.13MB

Title: Review of HUD’s Personal Identity Verification and Privacy Program

We audited the U.S. Department of Housing and Urban Development’s (HUD) efforts to implement the common identification standards for contractors and federal employees specified in Homeland Security Presidential Directive 12 (HSPD 12) and assessed whether those efforts complied with federal laws and guidelines governing privacy, personnel security, and information technology security. We found that HUD has made progress in implementing the personal identity verification requirements of HSPD 12. However, several matters require management attention to ensure the successful implementation and long-term security of HUD’s personal identity verification and privacy program: (1) HUD did not meet all deadlines for establishing its personal identity verification process, as mandated by OMB; (2) HUD did not follow the personal identity proofing, registration, and issuance process required by OMB; and (3) HUD did not take appropriate steps to ensure adequate security over the systems supporting its personal identity verification and privacy program.

We recommended that the Office of Security and Emergency Planning (1) Ensure HSPD 12 requirements are fully implemented by establishing formal agreements with other HUD offices to confirm understanding of their responsibilities under the Directive; and (2) ensure that the personal identity verification process and supporting information systems, including all components, are properly certified and accredited in accordance with National Institute of Standards and Technology requirements before being placed into full-scale production.

We recommended that the Office of the Chief Information Officer ensure that (1) systems with personally identifiable information are categorized properly by program offices and (2) all HUD systems comply with backup requirements stated in National Institute of Standards and Technology Special Publication 800-53, especially systems with moderate and high impact levels.

We recommended that the Office of the Chief Procurement Officer develop a process to ensure that contracting officers include contract language to implement HSPD 12 standards for all applicable new and existing contracts.


Issue Date: August 17, 2007
Audit Report No.: 2007-PH-0002
File Size: 163.55KB

Title: HUD’s Oversight of Contractors’ Marketing of Its Real Estate-Owned Properties

In accordance with our annual audit plan, we initiated an internal audit involving management and marketing contractors (contractors) under the jurisdiction of the U.S. Department of Housing and Urban Development’s (HUD) Philadelphia Homeownership Center. The purpose of the audit was to determine whether HUD’s oversight of its contractors ensured that the contractors marketed HUD’s real estate-owned properties in accordance with their contract requirements.

HUD’s Philadelphia Homeownership Center's oversight of its contractors did not ensure the effective marketing of HUD’s real estate-owned properties. During our review period of August 2004 through September 2006, the Philadelphia Homeownership Center's contractors routinely failed to meet their marketing performance requirements. Marketing performance failed to meet targets because the sales goals and other objectives measured under contract terms were inconsistent with local market conditions and inflexible. Homeownership Center staff monitored performance monthly, as required, but without overall positive impact on inventory reduction, improved return on sales, or increased owner occupancy of HUD real estate-owned properties. As a result, the Philadelphia Homeownership Center is not fully accomplishing HUD's national goal to expand homeownership opportunities, strengthen neighborhoods and communities, and ensure a maximum net return to the mortgage insurance fund.

We recommend that the assistant secretary for housing – federal housing commissioner establish and implement procedures to address cases in which contractors demonstrate a pattern of not meeting their contract requirements. We also recommend that the assistant secretary assess HUD’s policies discussed in this report and revise them as needed to improve the contractors’ performance and, thereby, better accomplish HUD’s goals regarding its real estate-owned properties.


Issue Date: July 30, 2007
Audit Report No.: 2007-FW-1801
File Size: 33.94KB

Title: SecurityNational Mortgage Company Dallas, TX

During the audit of Alethes Mortgage LLC.(Alethes), we noted a loan that closed in November 2005 and defaulted in April 2006 contained a questionable rent verification. While the loan was originated by Alethes, it was underwritten by SecurityNational Mortgage Company (SecurityNational). Due to this and U.S. Dept. of Housing and Urban Development (HUD) not being able to provide the case file, we did not include this loan in our audit findings on Alethes. We are requesting that the Quality Assurance Division review this loan and determine whether it should be indemnified.


Issue Date: June 7, 2007
Audit Report No.: 2007-SE-0001
File Size: 423.86KB

Title: HUD Did Not Ensure That Payments to Contract Administrators Were for Work Performed or That Interest Was Earned on Advances and Recovered

We initiated a review of the U.S. Department of Housing and Urban Development's payments to project-based Section 8 contract administrators for incentive-based performance standards tasks 8, related to tenant income matching; 11, budgets, requisitions, and revisions; and 12, year-end settlement statements. We initiated the review because our audit survey of the Los Angeles Multifamily Hub's monitoring of the annual contributions contract disclosed that contract administrators had been allowed to bill for services not performed for these tasks.

Our audit objectives were to determine whether HUD (1) acted appropriately when it allowed contract administrators to bill for tasks for which HUD no longer required activity, (2) had adequate procedures in place to ensure that federal advances made for housing assistance payments were invested in interest-bearing accounts, and (3) had adequate procedures in place to recover interest earned on federal advances.

We found that HUD paid contract administrators $27.2 million during fiscal year 2006 for work HUD had eliminated but which was still a requirement of the contract. Additionally, HUD did not ensure that housing assistance payment advances were kept in interest-bearing accounts, resulting in $54,279 in interest not earned, and did not recover $132,841 in interest earned on advances kept in interest-bearing accounts.


Issue Date: May 21, 2007
Audit Report No.: 2007-BO-0002
File Size: 281.99KB

Title: HUD Did Not Process MAP Applications within Established Processing Goals and the MAP Guide Is Outdated

We initiated a review of the U.S. Department of Housing and Urban Development’s (HUD’s) multifamily accelerated processing (MAP) procedures as part of our annual audit plan. HUD’s Federal Housing Administration (FHA) insures billions of dollars in multifamily housing mortgage loans. A key feature of MAP is its delegation of significant responsibilities to multifamily housing lenders for underwriting the loans that FHA insures. The objective of our review was to determine how effectively HUD implemented processes for reviewing and monitoring MAP lenders’ underwriting of loans.

MAP is an effective way of processing multifamily mortgage insurance applications. HUD has maintained a careful balance between expedited processing and ensuring an acceptable level of risk for its mortgage insurance programs. However, it did not process MAP applications within established timeframes and the MAP Guide is not current.

We recommend that the acting director for the Office of Multifamily Housing Development examine the MAP processing timeframes to determine what practical improvements HUD can make to achieve faster processing and implement the improvements. We also recommend that HUD update and issue a revised MAP Guide, and implement a system to ensure that new requirements are implemented formally.


Issue Date: April 30, 2007
Audit Report No.: 2007-KC-0003
File Size: 77.70KB

Title: HUD Did Not Recapture Excess Funds from Assigned Bond-Financed Projects

HUD OIG audited excess funds generated by the U. S. Department of Housing and Urban Development's (HUD) mortgage insurance program. Excess funds are the amounts remaining under the trust indenture after the trustee uses mortgage insurance proceeds to redeem all outstanding bonds related to an assigned mortgage.

Our audit objective was to determine whether HUD properly identified, claimed, and collected excess funds. We concluded that HUD did not identify, claim, and collect excess funds generated by assigned bond-financed mortgages. It had inadequate controls over origination and assignment of bond-financed mortgages. As a result, for 33 projects reviewed, HUD failed to claim and collect $2 million in excess funds. If it does not implement effective controls, it will continue to miss opportunities to claim and collect excess funds.

We recommended that HUD take appropriate actions to strengthen controls and ensure that excess funds are identified, claimed, and collected.


Issue Date: April 5, 2007
Audit Report No.: 2007-DP-0005
File Size: 340KB

Title: Review of HUD's Information Technology Security Program

We have audited the U.S. Department of Housing and Urban Development's (HUD) information security program's compliance with federal requirements. We performed this audit because it is a required component of our fiscal year 2006 consolidated financial statements audit and our annual evaluation of HUD's information system security program in accordance with the Federal Information Security Management Act (FISMA). We found that HUD has continued its progress in implementing a comprehensive, entity-wide set of information system security program policies and procedures. However, several matters require management attention: (1) HUD's program offices and system owners are not performing their FISMA roles and responsibilities related to the updating of security documentation, obtaining role-based training, and testing their applications' technical security controls; and (2) HUD's Office of the Chief Information Officer (OCIO) has not fully implemented an effective, entity-wide information security program.

We recommended that the OCIO request that the deputy secretary direct program officials to properly perform their information security responsibilities by (1) updating security documents to comply with federal requirements, (2) obtaining training in line with their information security roles and responsibilities, (3) continuing the effort to properly categorize systems they manage and oversee, and (4) developing office-specific guidance and procedures as necessary.

We recommended that the OCIO fully implement an effective information security program by (1) completing the role-based training program for staff with significant security information technology responsibilities, (2) completing the resolution of the current open security vulnerabilities on the general support systems, and (3) providing resources and guidance needed for program offices and system owners to perform technical security control testing on their high-impact applications.


Issue Date: April 3, 2007
Memorandum No.: 2007-NY-0802
File Size: 446.46KB

Title: Community Development Block Grant Disaster Recovery Assistance Funds, Lower Manhattan Development Corporation, New York, New York

During the eighth in our series of ongoing audits of the Lower Manhattan Development Corporation's (LMDC) administration of the $2.783 billion in Community Development Block Grant Disaster Recovery Assistance funds provided to the State of New York following the September 11, 2001, terrorist attacks on the World Trade Center in New York City, we identified a concern about whether certain activities, for which funds have been disbursed and additional funds are planned to be disbursed under the Utility Restoration and Infrastructure Rebuilding (URIR) program, represent an appropriate expense of the program. Specifically, an analysis is warranted to determine whether URIR category two costs, approved via an amendment of internal program guidelines, to be incurred in connection with the southern site utility infrastructure, should have been approved via the action plan process. Further, when the amended action plan S-2 is submitted for approval, the proposed additional southern site costs warrant careful review to determine whether they are costs that were contemplated by the original program and whether some of those planned expenditures more appropriately should be charged to another program.

We recommend that HUD's general deputy assistant secretary for community planning and development instruct LMDC to (1) provide documentation so that HUD can determine whether the southern site activity added via program guidelines meets the criteria necessary to be included as part of the initial URIR program's objectives, and whether the utility work outlined for the southern site should have gone through the same action plan procedures as other activities. If the southern site disbursements do not meet the criteria of the program, LMDC should be instructed to seek repayment of the funds already advanced, and (2) when the amended partial action plan S-2 is submitted for HUD approval, provide additional specifics as to the activity to be funded via the proposed amendments to the partial action plan so that a determination can be made as to whether it is consistent with the congressional intent for the URIR program.


Issue Date: February 22, 2007
Audit Report No.: 2007-DP-0004
File Size: 899.82

Title: Fiscal Year 2006 Review of Information Systems Controls in Support of the Financial Statements Audit

We reviewed general and application controls for selected information systems as part of the Office of Inspector General’s (OIG) audit of the U.S. Department of Housing and Urban Development’s (HUD) financial statements for fiscal year 2006. Our review was based on the Government Accountability Office (GAO) "Federal Information Systems Controls Audit Manual" and information technology guidelines established by the Office of Management and Budget (OMB), and the National Institute of Standards and Technology (NIST).

We found weaknesses and deficiencies in controls that stem from HUD’s noncompliance with (i) requirements for internal controls established by OMB, (ii) guidance for securing information systems issued by NIST, and (iii) HUD’s own policies and procedures. We recommend that HUD take steps to ensure compliance with OMB requirements, NIST guidelines, and HUD's own internal policies and procedures.


Issue Date: February 12, 2007
Audit Report No.: 2007-BO-0001
File Size: 380KB

Title: The Hartford Office of Community Planning and Development Did Not Always Adequately Monitor Community Development Block Grant Program Participants or Follow HUD Requirements

As part of our annual plan, we initiated a review of the U.S. Department of Housing and Urban Development’s (HUD) Hartford, Connecticut, Office of Community Planning and Development (CPD) due to indications of inadequate monitoring identified during a previous HUD Office of Inspector General (OIG) external audit. Our audit objectives were to determine whether the Hartford CPD office (a) ensured that Community Development Block Grant (CDBG) funds were used for activities that met one of the three primary national objectives and (b) adequately monitored program participant activities to ensure their eligibility and proper classification.

As part of their on-site monitoring of program participants, the Hartford CPD office appeared to ensure that CDBG funds were used for activities that met one of the three primary national objectives and were eligible and properly classified but we were unable to verify they did. However, it did not always adequately monitor CDBG program participants or follow HUD requirements. It did not always issue required monitoring letters in a timely manner, maintain or complete required documentation, and perform adequate followup. Inadequate monitoring allows findings and concerns to go uncorrected, placing CDBG funds at unnecessary risk. Further, the lack of an administrative record and required documentation negatively impacts HUD and makes enforcing sanctions more difficult.

We recommend that the general deputy assistant secretary, Office of Community Planning and Development, implement additional oversight and a plan to ensure that: (1) the CPD staff are familiar with and understand the monitoring requirements of HUD Handbook 6509.2, REV-5, (2) monitoring letters are prepared and provided to the program participants within 45-days, (3) correct handbook exhibits are used, completed, and prepared electronically before issuance of the monitoring letter, (4) all correspondence, documentation, and working papers relating to the monitoring and conclusions are maintained in the official field office files, (5) adequate followup is performed, documented, and communicated to program participants within required timeframes, and (6) the director of the Hartford HUD Office of Community Planning and Development is complying with the procedures and policies described in the recommendations 1 through 5. We did not make any recommendations regarding meeting a primary national objective, eligibility or classification since we could not make a determination based on the information available at the Hartford CPD office.


Issue Date: January 29, 2007
Audit Report No.: 2007-KC-0002
File Size: 382.87KB

Title: HUD Can Improve Its Use of Residual Receipts to Reduce Housing Assistance Payments

HUD-OIG reviewed the US Department of Housing and Urban Development's (HUD) use of multifamily projects' residual receipts to reduce housing assistance payments. This review was a followup to a September 2000 audit (Report #2000-SE-119-0003). Our objective was to determine whether HUD used multifamily projects residual receipts to reduce housing assistance payments.

HUD can improve its use of residual receipts to reduce housing assistance payments. It did not provide detailed guidance to ensure that project managers and contract administrators understood they could use residual receipts in lieu of subsidy payments. As a result, HUD did not use more than $36 million in available residual receipts to reduce housing assistance payments for the 10 new regulation projects that we reviewed.

We recommend that the deputy assistant secretary for multifamily housing programs provide more detailed guidance to its field offices and contract administrators that will identify when projects have sufficient residual receipts to fund housing assistance payments and provide and annually update a list of projects to the field offices and contract administrators that indicates when projects have sufficient residual receipts to fund subsidy payments.


Issue Date: January 26, 2007
Audit Report No.: 2007-KC-0001
File Size: 123.21KB

Title: HUD Adequately Addressed the Increased Risk Associated with 20-year Loans Approved by Automated Underwriting Systems

HUD-OIG completed a review of HUD's oversight of 20-year insured loans. Our objective was to determine if HUD has adequately addressed the increased risk associated with 20-year loans approved by an automated underwriting system. HUD has adequately addressed the increased risk associated with these loans. In December 2004, HUD changed the way it processes these loans. Since this change, the default rate decreased dramatically to less than 3 percent for loans closed in fiscal year 2006. Based on the results of our review, we did not recommend corrective action.


Issue Date: January 25, 2007
Audit Report No.: 2007-DP-0003
File Size: 808.47KB

Title: Reivew of HUD's Procurement Systems

We audited the U.S. Department of Housing and Urban Development (HUD) Procurement System and Small Purchase System to assess their compliance with federal financial management and Federal Information Security Management Act of 2002 (FISMA) requirements. We evaluated the systems and reviewed certain input and processing controls to determine (1) whether the HUD procurement systems comply with the requirements of the Joint Federal Management Improvement Program publication, JFMIP SR-02-02, “Acquisition/Financial Systems Interface Requirements,” and (2) the adequacy of the implementation of information security responsibilities and information security categorization.

The HUD Procurement System and Small Purchase System do not adequately support HUD’s efforts to manage and monitor procurement transactions. They do not (1) adequately monitor the procurement process, (2) have adequate separation of duties controls, or (3) contain sufficient financial data to effectively manage and monitor procurement transactions. In addition, HUD’s Office of the Chief Procurement Officer did not design or implement information security controls or ensure that its information security responsibilities were fulfilled.

We recommend that the Office of the Chief Procurement Officer perform a cost benefit analysis to determine whether it is more advantageous to modify or replace the HUD Procurement System and Small Purchase System to comply with federal requirements. We also recommend that the Office of the Chief Procurement Officer complete, design, and implement the required information security controls.


Issue Date: January 18, 2007
Audit Report No.: 2007-DP-0002

Title: Review of HUD’s Information Technology Services (HITS) Contracts (Report Not Available to Public)

The Office of Inspector General (OIG) has completed an audit of the management and modifications of the U.S. Department of Housing and Urban Development’s information technology services contracts (HITS). OIG examined contract compliance, service-level agreements, contract modifications, and implementation of information security controls. The OIG has determined that the contents of this report is not appropriate for public disclosure and has therefore limited its distribution to selected officials.


Issue Date: January 12, 2007
Audit Report No.: 2007-PH-0001
File Size: 570.80KB

Title: HUD Controls Prevented Multiple Sales to Owner-Occupant Purchasers but Did Not Ensure That Owners Occupied Residences as Required

We audited the U.S. Department of Housing and Urban Development’s (HUD) Single Family Real Estate Owned Property Sales. We audited the single-family sales to owner-occupant purchasers under the jurisdiction of HUD's Philadelphia Homeownership Center. We performed the audit at the request of the Homeownership Center’s Quality Assurance Division. Our audit objective was to determine whether HUD’s policy for single-family home sales to owner-occupant purchasers was followed and adequately monitored.

HUD’s policy for single-family home sales to owner-occupant purchasers was followed and adequately monitored to prevent multiple purchases by owner-occupant purchasers within a 24-month period. This is because HUD updated its Single Family Accounting Management System to ensure that Social Security numbers of purchasers were entered into the system and monitored to ensure that prospective owners had not purchased a HUD-owned property within the previous 2 years. However, for 15 of 51 owner-occupant purchases (29 percent) we audited, owner-occupant purchasers did not comply with the 12-month residency requirement. This occurred because HUD did not implement a monitoring process to ensure that purchasers who certified that they would live in a home for 12 months met the residency requirement.

We recommend that HUD consider eliminating the 12-month requirement by evaluating whether it is needed since enforcement of the requirement may not be practical and violations do not constitute a monetary loss to HUD. If HUD concludes that the 12-month residency requirement is essential, as appropriate, it should monitor compliance and enforce the requirement.


Issue Date: November 16, 2006
Audit Report No.: 2007-SE-0801
File Size: 46.37KB

Title: Corrective Action Verification Seattle Housing Authority’s Moving to Work Program Audit Report 2004-SE-1004

We performed a corrective action verification of HUD's actions in implementing the recommendations from our audit of the Seattle Housing Authority's Moving to Work Program, Audit Report 2004-SE-1004, issued May 21, 2004. The purpose of the corrective action verification was to determine if recommendations 1A, 1B, 1C, and 1D were implemented and the deficiencies reported in the audit report corrected. Our corrective action verification found that HUD's Office of Public Housing Investments had adequate documentation and justification to recommend closure of the recommendations regarding relocation assistance and subsidy-layering reviews. However, we found that there was insufficient justification for the closure of the recommendations 1A and 1D regarding environmental reviews and prevailing wages and will reopen these recommendations. In accordance with Audits Management System Handbook 2000.06 REV-3, paragraph 8-1C, the reopened recommendations should have the final action taken within 180 calendar days of the date of this memorandum.


Issue Date: November 14, 2006
Audit Report No.: 2007-FO-0003
File Size: 684.88KB

Title: Additional Details to Supplement Our Report on the U.S. Department of Housing and Urban Development Financial Statements for Fiscal Years 2006
and 2005

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 2006 and 2005 Financial Statements, which is included in HUD's Fiscal Year 2006 Performance and Accountability Report.

In OIG's opinion, based on our audit and the reports of other auditors, the financial statements present fairly, in all material respects, the financial position of HUD as of September 30, 2006 and 2005 and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America.

The report identifies (a) six reportable conditions on internal controls and (b) two instance of non-compliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate them, and makes recommendations for corrective actions. During the course of the audit, OIG also identified several matters that are not material to the financial statements and are being separately communicated to HUD management.


Issue Date: November 8, 2006
Audit Report No.: 2007-LA-0001
File Size: 1.5MB

Title: Tax Credit Project Owners Are Allowed to Charge Higher Rents for Tennant-Based Section 8 Voucher Households Than Non-Voucher Households

HUD's Office of Inspector General (OIG) initiated this review as a follow-up to previous OIG audit work at a public housing agency that noted low-income housing tax credit (tax credit) projects charged higher rents for tenant-based housing choice voucher households than to tenants without vouchers. The rents charged for voucher households also exceeded the rent restrictions established by the Internal Revenue Service for these tax credit projects.

We found that, consistent with program regulations, HUD allows tax credit project owners to charge the Housing Choice Voucher program more than $13.5 million annually for rents that exceed the Internal Revenue Service maximum rent when they lease rent restricted units to households with tenant-based housing choice vouchers (tenant-based vouchers). However, we determined that the same units would be available to the same households at the lower, Internal Revenue Service restricted rent, if the households had no vouchers (and were otherwise qualified). We recommended that, for tenant-based vouchers used for units in tax credit projects that have all of their units rent restricted, HUD change its regulations to cap Section 8 gross rents to the Internal Revenue Service restricted rent level that applies to units set aside for households qualifying in the 60 percent area median gross income level. We also recommended that HUD track the overlap of these two affordable housing programs by capturing the tax credit status of voucher units in its tenant record database.


Issue Date: November 8, 2006
Audit Report No.: 2007-FO-0002
File Size: 1.5MB

Title: Audit of the Federal Housing Administration's Financial Statements for Fiscal Years 2006 and 2005

This report presents the results of Urbach Kahn and Werlin LLP's audit of the Federal Housing Administration's (FHA) financial statements for the years ended September 30, 2006 and 2005. In Urbach Kahn and Werlin's opinion, the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 2006 and 2005, and its net costs, changes in net position, budgetary resources, and reconciliation of budgetary obligations to net cost for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The report identifies three reportable conditions on internal controls and one instance of non-compliance with laws and regulations, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. During the course of the audit, Urbach, Kahn, and Werlin also noted other matters that are not material to the financial statements and are being separately communicated to FHA management.


Issue Date: November 7, 2006
Audit Report No.: 2007-FO-0001
File Size: 1.2MB

Title: Audit of the Government National Mortgage Association's Financial Statements for Fiscal Years 2006 and 2005

This report presents the results of Carmichael, Brasher, Tuvell and Company's audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the years ended September 30, 2006 and 2005. In Carmichael, Brasher, Tuvell and Company's opinion, the financial statements present fairly, in all material respects, the financial position of Ginnie Mae as of September 30, 2006 and September 30, 2005 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In addition to Carmichael, Brasher, Tuvell and Company's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions in Ginnie Mae's internal controls and no reportable instances of noncompliance with laws, regulations, and provisions of contracts. Carmichael, Brasher, Tuvell and Company noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae's management. This report presents the results of Carmichael, Brasher, Tuvell and Company's audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the years ended September 30, 2006 and 2005. In Carmichael, Brasher, Tuvell and Company's opinion, the financial statements present fairly, in all material respects, the financial position of Ginnie Mae as of September 30, 2006 and September 30, 2005 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In addition to Carmichael, Brasher, Tuvell and Company's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions in Ginnie Mae's internal controls and no reportable instances of noncompliance with laws, regulations, and provisions of contracts. Carmichael, Brasher, Tuvell and Company noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae's management.


Issue Date: October 11, 2006
Audit Report No.: 2007-DP-0001

Title: Review of HUD Firewall Implementation (Report Not Available to Public)

The Office of Inspector General (OIG) has completed an audit the U.S. Department of Housing and Urban Development’s (HUD) deployment and configuration of firewalls within the network. The objective was to evaluate the configurations and effectiveness of the controls surrounding the firewalls. This audit was conducted in conjunction with (1) the annual audit of HUD’s consolidated financial statements and (2) the annual evaluation of HUD’s information system security program and practices required by the Federal Information Security Management Act of 2002. The OIG has determined that the contents of this report is not appropriate for public disclosure and has therefore limited its distribution to selected officials.


Calendar Year 2006

Issue Date: September 29, 2006
Audit Report No.: 2006-DP-0803

Title: OIG Response to Questions from the Office of Management and Budget under Federal Information System Management Act of 2002 (Report Not Available to Public)

The Federal Information Security Management Act of 2002 (FISMA) directs the Office of the Inspector General (OIG) to perform an annual independent evaluation of the U.S. Department of Housing and Urban Development's (HUD) information security program and practices. This memorandum presents the results of the OIG's evaluation of HUD’s compliance with FISMA. The OIG has determined that the contents of this memorandum would not be appropriate for public disclosure and has therefore limited its distribution to selected officials.


Issue Date: September 21, 2006
Audit Report No.: 2006-DP-0802

Title: Assessment of HUD's Compliance with Office of Management and Budget Memorandum M-06-16, "Protection of Sensitive Agency Information" (Report Not Available to Public)

We have completed a limited scope assessment of the U.S. Department of Housing and Urban Development’s compliance to the Office of Management and Budget Memorandum M-06-16, “Protection of Sensitive Agency Information.” The memorandum stresses that federal agencies take all necessary and reasonable measures to eliminate significant vulnerabilities to the sensitive information entrusted to them. Agencies are required to (1) implement National Institute of Standards and Technology-recommended security controls and take specific actions by August 7, 2006, and (2) answer questions related to personally identifiable information and the extent to which specific controls and actions required by the memorandum were designed and implemented. Additionally, the inspectors general community is required to assess compliance with the memorandum. The Office of Inspector General has determined that the contents of this memorandum would not be appropriate for public disclosure. Therefore, we have limited its distribution to selected HUD officials.


Issue Date: August 31, 2006
Audit Report No.: 2006-DP-0005
File Size: 208KB

Title: Review of HUD’s Information Technology Contingency Planning and Preparedness

We audited the U.S. Department of Housing and Urban Development’s (HUD) information technology contingency planning and preparedness compliance with federal requirements and its ability to recover in the event of interruption or disaster in a timely manner. We found that HUD has made significant progress in implementing information technology contingency planning and preparedness. However there are several areas of concern that require management attention: (1) The current information technology contingency planning process does not fully use the planning process as recommended by the National Institute of Standards and Technology; (2) There is no assurance that the alternate data recovery facilities have the capability to restore HUD’s mission-critical and major applications within the required timeframes; and (3) HUD’s information technology contingency and disaster recovery plans are not documented and maintained to reflect current conditions.

We recommend that the Office of the Chief Information Officer (1) Request the program officials to complete the business impact analyses (BIA) and the risk assessments and ensure that they are incorporated into HUD’s contingency and disaster recovery plans and that the documents reflect current conditions and incorporate corrective actions identified through testing; (2) Ensure that key Lockheed Martin personnel at the Network Operating Center develop a memorandum of understanding with its alternate recovery facility that will include provisions for the inclusion of disaster recovery documents at the alternate recovery sites and technical support for Lotus Notes; (3) Evaluate the Electronic Data Systems (EDS) and SunGard “no priority of service” provisions to determine whether conflicting priorities impact the recovery time objectives.


Issue Date: August 29, 2006
Audit Report No.: 2006-AT-0001
File Size: 474.53KB

Title: The Procurement Office Did Not Maintain Complete Contract Files

HUD OIG audited the Office of the Chief Procurement Officer's (Procurement Office) emergency response contract award process as part of the Office of Inspector General's (OIG) annual audit plan, along with our efforts to monitor Hurricanes Katrina and Rita disaster relief efforts. The objective was to evaluate the economy, efficiency, and effectiveness in the award of the contract funds for hurricane relief and recovery efforts.

The Procurement Office did not maintain complete files for contract actions that were awarded in response to disaster-related relief efforts. In 11 of the 13 contract files reviewed, we found that information was either missing or not prepared in accordance with applicable regulations, policies, and procedures. These deficiencies occurred because the Procurement Office did not have adequate controls to ensure that contract files were complete when contracts needed to be awarded promptly. As a result, HUD cannot be assured that contract files related to emergency contract actions were complete and in compliance with applicable regulations, policies, and procedures.

OIG recommended that the chief procurement officer develop and implement internal controls to ensure that the contract files are complete and in accordance with applicable regulations, policies, and procedures for contracts awarded in response to disaster-related events.


Issue Date: August 16, 2006
Audit Report No.: 2006-SE-0002
File Size: 87.80KB

Title: The Office of Single Family Housing Expanded Late Endorsement Eligibility without Studying Associated Risk

On May 17, 2005, HUD's Office of Single Family Housing issued Mortgagee Letter 2005-23, removing the six-month payment history requirement for loans submitted late for endorsement. Although the Office of Single Family Housing asserted the change did not materially increase the Federal Housing Administration's mortgage insurance risk, it did not perform a risk analysis to support this determination. Contrary to this assertion, our review of the performance of loans from seven prior Office of Inspector General (OIG) late endorsement audits found a three and one-half times higher risk of claims when loans had unacceptable payment histories within the prior six months. Further, since the issuance of the mortgagee letter, the default rate for loans submitted late has increased and is significantly higher than the default rate for loans submitted in a timely manner. We recommend that HUD's Assistant Secretary for Housing-Federal Housing Commissioner (1) rescind Mortgagee Letter 2005-23 until appropriate rule changes can be designed that are supported by an adequate risk assessment considering newly endorsable loans and (2) establish sufficient documentation practices to document assertions and identify supporting data referenced in published documents such as policies and directives. Documentation should be sufficient to permit a competent and independent management review and create an audit trail.


Issue Date: July 21, 2006
Audit Report No.: 2006-CH-0003
File Size: 763.69KB

Title: The Congressional Grants Division’s Oversight of Economic Development Initiative – Special Purpose Grants Needs to Be Improved

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited HUD's Congressional Grants Division’s (Division) oversight of Economic Development Initiative – Special Purpose Grants (Grants) appropriated for fiscal years 2002 through 2005. The audit was part of our fiscal year 2005 annual audit plan, and our strategic plan to contribute to improving HUD’s execution of and accountability for fiscal responsibilities. Our objectives were to determine the adequacy of HUD’s application and award processing, and monitoring of the Grants.

The Division did not require grantees to place liens on assisted properties’ titles. It also did not ensure that grantees placed covenants on assisted properties’ titles assuring nondiscrimination and that Grant funds were appropriately used according to HUD’s Grant agreements with grantees.

We statistically selected 105 fiscal years 2002 through 2005 Grants for review to determine the adequacy of the Division’s application and award processing, and the monitoring of the Grants. Of the 105 Grants, the Division did not ensure that 71 grantees submitted required forms and documentation for appropriate monitoring, and 9 grantees properly completed (7) or even submitted (2) required application and award forms and documentation. The Division also could not support that 4 grantees submitted required semi-annual progress reports, 3 grantees submitted certifications regarding lobbying, and that it approved 2 grantees’ environmental release of funds before disbursing Grant funds.

We recommend that HUD’s general deputy assistant secretary require the Division to improve its existing procedures and controls to ensure that 1) grantees receiving Grant funds above a HUD-established minimum threshold record liens showing HUD’s interest in assisted properties, 2) grantees place covenants on properties’ titles assuring nondiscrimination, 3) grantees properly complete required application forms and documentation for Grant awards, 4) Grant funds are appropriately used, and 5) Grant funds are properly disbursed. We also recommend that HUD’s associate general counsel of assisted housing and community development strengthen existing procedures and controls over the Grant agreement template review to ensure that citations to requirements are accurate.


Issue Date: July 13, 2006
Audit Report No.: 2006-CH-0002
File Size: 344.77KB

Title: The Office of Public and Indian Housing Is Taking Action to Oversee the Section 202 Mandatory Conversion Program

Since March 2003, housing authorities were generally successful in complying with the mandatory conversion of low-income housing units to the Section 8 Housing Choice Voucher program. We reviewed all 28 public housing developments in HUD’s Region V that were subject to the mandatory conversion requirements to determine whether they were following Section 202 and 24 CFR [Code of Federal Regulations] Part 971. Except for the Detroit Housing Commission’s (Commission) Fredrick Douglass development, all developments had either completed or were in the process of meeting the mandatory conversion requirements.

HUD approved the partial demolition of the Fredrick Douglass development in July 2001 based in part on its high vacancy rate. As of March 22, 2006, partial demolition had occurred; however, the development was still not meeting the mandatory conversion requirements and it had a vacancy rate of 43 percent.

The Office of Public and Indian Housing agreed to strengthen its procedures and controls to ensure that all public housing authorities comply with the mandatory conversion requirements. It also agreed to ensure that the Commission complies with the mandatory conversion requirements regarding the Frederick Douglass development.

We recommend that the deputy assistant secretary for public housing investments implement additional procedures and controls to ensure that all public housing authorities comply with Section 202 and HUD’s regulations regarding the mandatory conversion of low-income housing units. We also recommend that the acting deputy assistant secretary initiate appropriate action to ensure that the Frederick Douglass development complies with Section 202’s requirements and HUD’s regulations regarding mandatory conversion.


Issue Date: July 11, 2006
Audit Report No.: 2006-SE-0001
File Size: 4.04MB

Title: Significant Weaknesses in HUD’s Oversight of Single Family Mortgage Insurance Claims are Costly

We reviewed the U.S. Department of Housing and Urban Development's (HUD) controls over the payment of Federal Housing Administration Mutual Mortgage Insurance Fund single family claims. We wanted to know whether HUD had controls in place to ensure paid claims were reviewed to determine if the mortgage loans met program requirements. We found HUD did not independently determine mortgage loans insured under the Mutual Mortgage Insurance Fund met program requirements after paying billions in single family insurance claims. Our tests of FHA loan files determined that 44 of 175 randomly selected claims were paid for mortgages that, based on HUD's loan file, did not meet program requirements. We estimate final HUD costs for claims that did not meet program requirements during the period reviewed totaled $356 million on those claims for which all revenues and expenses were finalized.

We recommend HUD: (1) establish procedures to review paid claims associated with early defaulted loans and unsupported final costs, and independently verify that loans met HUD-FHA program requirements and were therefore eligible for insurance; (2) seek recovery or adequate support for final HUD costs for the 44 unsupported claims identified in our sample; and (3) based on the results of (2), assess costs and benefits associated with reviewing claims on early defaulted loans received since the beginning of our audit period, October 1, 2003, and if feasible, independently determine that loans comply with program requirements and seek recovery or adequate support for final HUD costs associated with those claims


.Issue Date: July 11, 2006
Audit Report No.: 2006-BO-0001
File Size: 723.25KB

Title: HUD Incorrectly Approved $42 Million in Operating Subsidies for Phase-Down for Demolition Add-On Funding

We audited the U.S. Department of Housing and Urban Development (HUD), Office of Public and Indian Housing, phase-down for demolition add-on funding (phase-down funding) calculations for the Public Housing Operating Fund program. We initiated the audit based on results of a prior audit that indicated the Office of Public and Indian Housing did not always obtain adequate supporting documentation from public housing agencies before approving requests for phase-down funding. Our objective was to determine whether the Office of Public and Indian Housing obtained and adequately reviewed the supporting documentation for the $74.3 million in approved phase-down funding for fiscal years 2004 and 2005.

The Office of Public and Indian Housing did not always obtain and adequately review supporting documentation before approving $42 million in phase-down funding. This occurred because each local Office of Public and Indian Housing field office implemented its own procedures for the review of phase-down funding requests in the absence of formal guidance from the Office of Public and Indian Housing’s national office. Without this guidance, the field offices (HUD staff) interpreted and applied phase-down for demolition regulations inconsistently. As a result, the Office of Public and Indian Housing funded more than $15.1 million in unsupported and $20.6 million in ineligible phase-down funding requests for fiscal years 2004 and 2005. By implementing needed controls, the Office of Public and Indian Housing can avoid funding an additional $6.3 million in ineligible requests for fiscal year 2006.

We recommend that the Office of Public and Indian Housing develop formal guidance and review procedures for approving requests for the phase-down for demolition funding. In addition, we recommend that it direct HUD staff to obtain and review support for the $15.1 million in unsupported phase-down funding requests for fiscal years 2004 and 2005, determine the correct amount of phase-down funding, and require the public housing agencies to reimburse HUD for any ineligible phase-down funding received. We also recommend that the Office of Public and Indian Housing recover the $20.6 million in ineligible phase-down funding paid to public housing agencies in fiscal years 2004 and 2005. We further recommend that the Office of Public and Indian Housing direct HUD staff to obtain and review complete support for phase-down funding requests for fiscal year 2006 to avoid funding the $6.3 million in incorrectly approved phase-down funding requests.


Issue Date: June 19, 2006
Audit Report No.: 2006-KC-0003
File Size:

Title: HUD Did Not Ensure That the Omaha Housing Authority Repaid Its Public Housing Programs $2.7 Million

HUD-OIG audited HUD's efforts to collect a $2.7 million debt from the Omaha Housing Authority of Omaha, Nebraska. We performed this audit in response to a citizen's complaint that the Authority's board of commissioners had not taken steps to repay or resolve the liability.

Our objectives were to determine why the liability existed, to whom it was owed, and what efforts HUD made to collect it. We found that HUD did not ensure that the Authority repaid its public housing programs $2.7 million, nor did it establish a repayment agreement. As a result, the Authority's programs did not have these funds available for their intended purposes. We recommended that HUD establish a repayment agreement with the Authority to resolve the liability.


Issue Date: June 14, 2006
Audit Report No.: 2006-KC-0002
File Size: 316.51KB

Title: HUD’s Systems Usually Prevent Credit Watch-Terminated Lenders from Originating HUD-Insured Loans, But Brief Searches Could Find Additional Loans That Weren’t Prevented

HUD-OIG audited the Department of Housing and Urban Development's (HUD) Office of Housing to determine whether its controls adequately stop Credit Watch-terminated lenders from originating new loans in the area where they were terminated. This audit was part of our review of HUD's approval of loan correspondents, which was included in our annual plan.

HUD's controls almost always stop lenders from originating new loans in areas where their approval has been terminated. In a recent three-year period, lenders originated 58 insured loans contrary to their sanctions. During the same period, HUD insured over 3.3 million loans.

We recommend that the Office of Housing periodically search for loans that have been originated by terminated lenders and take appropriate action against the lenders that improperly originated the 58 loans we identified during our search.


Issue Date: June 8, 2006
Audit Report No. 2006-NY-0001
File Size: 1.16MB

Title: HUD's Controls over the Reporting, Oversight, and Monitoring of the Housing Counseling Assistance Program Were Not Adequate

We audited the U.S. Department of Housing and Urban Development’s (HUD) Housing Counseling Assistance Program (Program) as administered by the Philadelphia Homeownership Center. The objectives of our audit were to determine whether HUD 1) ensures the accuracy and reliability of the data reported on fiscal year activity reports (HUD form-9902), and has a system in place to measure the impact that the grants have on the performance measurements of the Program, and 2) has implemented a monitoring system that adequately accounts for and safeguards funds that HUD provides grantees.

We found that HUD’s controls do not allow adequate reporting on Program performance or relate to Program objectives. Specifically, a) the data reported on the HUD-9902 activity reports were inaccurate and not current, b) performance goals did not measure the effects of grant funds on the Program objectives, and c) some departmental Program objectives were not being measured. In addition, HUD’s oversight and monitoring of local housing counseling agencies was not adequate to ensure that the agencies were conducting activities in accordance with HUD requirements and grant agreements.

We recommend that the director of HUD's Office of Single Family Program Development establish controls that will ensure accurate and reliable fiscal year activity reports. Further, we recommend that the office implement procedures for reporting that provide for more timely information and the reporting of actual results in later reports when estimates are used. In addition, we recommend that the office implement a system that measures all Program objectives and goals. We also recommend that the office establish and implement written procedures to ensure that HUD provides adequate oversight and monitoring of the Program.


Issue Date: May 31, 2006
Audit Report No. 2006-PH-0002
File Size: 660.35KB

Title: The U.S. Department of Housing and Urban Development Improperly Admitted The Housing Authority of Baltimore City, Baltimore, MD, Into The Moving To Work Demonstration

HUD did not follow applicable statutory requirements when it admitted the Housing Authority of Baltimore City (Authority) to its Moving to Work program. In violation of the statute, HUD executed a Moving to Work agreement with the Authority without requiring it to provide for citizen participation through a public hearing or other means. It also violated the statute by not requiring the Authority to develop a plan that considered comments from the public hearing or any other public comments on its proposed program such as comments from current and prospective residents who would be affected. In addition to violating the statute, HUD also did not follow its normal award making process because it allowed the Authority to submit its expression of interest 31 months past the HUD-established deadline, and it did not require the Authority to demonstrate its ability to properly administer HUD funds.

HUD is prohibited from ignoring or waiving statutory requirements unless Congress expressly empowers it to do so, and Congress had not granted a waiver authorizing the Authority’s participation in the program. Rather, HUD’s former assistant secretary for Public and Indian Housing disregarded statutory requirements and HUD’s normal award making process by signing an agreement admitting the Authority into the Moving to Work program. The former assistant secretary improperly relied on a legal opinion from the Authority’s outside legal counsel and did not consult HUD’s legal counsel on the propriety of the agreement.

We recommend that HUD obtain an opinion from its Office of General Counsel to determine whether it has sufficient legal grounds to nullify the Authority’s Moving to Work agreement, and if so, we recommend that it nullify the agreement. If the agreement is nullified, we recommend that HUD reinstate recommendations from our prior audits of the Authority’s Section 8 and certificate and voucher programs, Audit Reports 2005-PH-1004 and 2001-PH-1003. HUD should immediately recapture $25.1 million from the Authority’s Section 8 reserve account that the Authority carried over to the Moving to Work program. We also recommend that HUD establish policies and procedures requiring it to obtain a legal opinion from its Office of General Counsel when it does not follow the normal award making process in approving housing agencies’ participation in future program initiatives.


Issue Date: April 13, 2006
Audit Memorandum No.: 2006-KC-0801
File Size: 43.92KB

Title: Audit Closeout: HUD’s Oversight of Public Housing Authorities’ Processes for Prohibiting Criminal Activity

HUD-OIG has completed a review of the U.S. Department of Housing and Urban Development's (HUD) oversight of how public housing authorities (authorities) implement the screening and eviction requirements for drug abuse and other criminal activity. Our review of HUD's requirements and of operations at three authorities did not identify any pervasive issues with HUD's controls over the screening and eviction requirements for drug abuse and other criminal activity in public housing and Housing Choice Voucher programs. Since we did not identify any high-risk areas that warrant investing further audit resources, we did not expand our testing or perform any detailed testing of HUD's controls. Therefore, we closed the review and did not proceed with more detailed audit work.


Issue Date: April 10, 2006
Audit Memorandum No.: 2006-FW-0801
File Size: 49.75

Title: Review of Partial Claim Option to Foreclosure under HUD's Loss Mitigation Program

We reviewed the partial claim option to avoid foreclosure under the U.S. Department of Housing and Urban Development's (HUD) loss mitigation program. The partial claim option is one of three home retention tools used to resolve defaults. The objective was to determine whether federal housing administration approved lenders' use of partial claims has prevented home foreclosures and as a result, reduced claims against HUD's insurance fund. Our review did not disclose any findings related to use of the partial claim tool to aid borrowers in default. Consequently, we have made no recommendations


Issue Date: February 14, 2006
Audit Report No.: 2006-DP-0004
File Size: 162.40KB

Title: Review of HUD's Information Security Program

We audited the U.S. Department of Housing and Urban Development’s (HUD) information security program compliance with federal requirements. We evaluated (1) the adequacy of the categorization of HUD major systems, (2) whether HUD’s Office of the Chief Information Officer has developed security policies and implemented and monitored enterprisewide controls, and (3) whether HUD program officials and system owners have properly implemented information security responsibilities assigned to them. We found that HUD has made considerable progress in implementing a comprehensive, entitywide information system security program. However, our review noted several matters that require management attention: (1) HUD’s program offices and system owners have not properly categorized HUD’s application systems and utilities, which could result in unnecessary expenditure of funds; (2) HUD’s Office of the Chief Information Officer has not fully implemented an effective entitywide information security program; and (3) HUD’s program offices and system owners have not complied with security responsibilities in accordance with the Federal Information Security Management Act and HUD information security program requirements.


Issue Date: February 9, 2006
Audit Report No.: 2006-KC-0001
File Size: 73KB

Title: HUD's Oversight of Evergreen Terrace

In response to a congressional request, HUD-OIG completed an audit of the Department of Housing and Urban Development's Mark-to-Market Program debt restructuring of Evergreen Terrace I. The audit objective was to determine whether HUD appropriately approved Evergreen's eligibility and exception rents under the Program, and assessed the physical condition of the property.

We concluded that HUD appropriately approved the project, approved exception rents for the project, and assessed the physical condition of the project.

Since we found no violations of the Program, we made no recommendations to the Deputy Assistant Secretary for Multifamily Housing.


Issue Date: February 2, 2006
Audit Report No. 2006-DP-0003

Title: Vulnerability Assessment of HUD's Computer Network (Report Not Available to Public)

We have completed a Network Vulnerability Assessment of HUD. The objective of our audit was to evaluate whether the department’s network security systems, including security controls and practices, adequately protect the integrity, confidentiality, and availability of data and information from unauthorized access to HUD’s systems through the performance of penetration testing. For criteria, we used recommendations from the following Special Publications issued by the National Institute of Standards and Technology: National Institute of Standards and Technology Special Publication (NIST SP) 800-42, “Guideline on Network Security Testing,” SP 800-14 “Generally Accepted Principles and Practices for Securing Information Technology Systems;” National Institute of Standards and Technology Special Publication (NIST SP) 800-68, “Guidance for Securing Microsoft Windows XP Systems for IT Professionals,” National Institute of Standards , Technology Special Publication (NIST SP) 800-40, “Procedures for Handling Security Patches,” and requirements for The Federal Information Security Management Act of 2002. We concluded from our assessment that, Although HUD has implemented controls to protect its network from external intruders; internal penetration testing identified security configuration and technical controls deficiencies. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Calendar Year 2005

Issue Date: December 7, 2005
Audit Report No.: 2006-PH-0001
File Size: 1.72MB

Title: The U.S. Department of Housing and Urban Development Did Not Properly Award Fiscal Year 2004 Healthy Homes and Lead Hazard Control Grants

In response to a number of congressional inquiries and complaints, we audited the process the U.S. Department of Housing and Urban Development (HUD) used to award its fiscal year 2004 Healthy Homes and Lead Hazard Control grants. Our audit objective was to determine whether HUD’s Office of Healthy Homes and Lead Hazard Control (Office of Healthy Homes) properly awarded its fiscal year 2004 Healthy Homes and Lead Hazard Control grants. We provided interim results of this audit in Audit Memorandum 2005-PH-0002, dated May 16, 2005.

We found HUD’s Office of Healthy Homes did not properly award the majority of its fiscal year 2004 Healthy Homes and Lead Hazard Control grants. Our audit of the 72 successful applications showed that HUD did not properly evaluate, or could not demonstrate that it properly evaluated 34 of the 72 applications, representing $92.7 million of the $168 million (55 percent) awarded during the fiscal year 2004 grant cycle. Our detailed review of these 34 applications showed HUD improperly awarded eight grants for $20.5 million. We could not determine the propriety of the remaining 26 grant applications receiving $72.3 million because the documents needed to support HUD’s award decisions could not be provided. In addition, HUD files pertaining to 54 of 55 applications (98 percent) reviewed for applicants that did not receive funding did not support the decision to reject the grant applications. Of these 54 applicants, we found that HUD denied one applicant $365,736 in grant funds that it was eligible to receive. These problems occurred during the 2004 grant award process because the Office of Healthy Homes did not have adequate internal controls in place to ensure the grant award process was fair and equitable.

We recommend that HUD’s Office of Healthy Homes implement controls to ensure it properly evaluates the grant applications and supports all awards. In addition, we recommend that the office continue efforts to recover or obtain a legal opinion to determine if the department can pursue recovery of the $20.5 million in improperly awarded grants it provided to eight applicants. Depending on the legal opinion, we further recommend that the office obtain the necessary documentation to support the award decisions relating to 26 other applicants receiving $72.3 million in grant funds and recover the amounts it determines were improperly awarded. Lastly, we recommend that the office review the remaining 135 applications that did not receive awards to ensure these applicants were not denied awards they should have received.


Issue Date: November 30, 2005
Audit Report No.: 2006-CH-0001
File Size: 379.26KB

Title: The Real Estate Assessment Center ’s Physical Condition Assessment Was Compromised

The U. S. Department of Housing and Urban Development’s (HUD) Office of Inspector General reviewed HUD's Real Estate Assessment Center’s (Center) housing inspections, and oversight and controls over its housing inspection process. We initiated the review based on our 2005 annual audit plan and our strategic plan to help HUD improve the execution of its fiscal responsibilities. Our objective was to determine whether the Center had adequate controls to safeguard the integrity of its housing inspection data.

Unauthorized persons accessed HUD’s confidential information. Controls and procedures for securing the Center’s housing information after a download and before the upload of inspection data were not in place to assure that only authorized users accessed confidential information and that authorized users did not provide their identifications and passwords to unauthorized persons. We informed the Center’s deputy assistant secretary of minor deficiencies through a memorandum, dated November 22, 2005.

We recommend that the Center’s deputy assistant secretary implement procedures and controls over the physical assessment subsystem to correct the deficiencies addressed in this report.


Issue Date: November 15, 2005
Audit Report No.: 2006-FO-0003
File Size: 1.5MB

Title: Additional Details to Supplement Our Report on the U.S. Department of Housing and Urban Development Financial Statements for Fiscal Years 2005 and 2004

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 2005 and 2004 Financial Statements, which is included in HUD's Fiscal Year 2005 Performance and Accountability Report.

In OIG's opinion, based on our audit and the reports of other auditors, the financial statements present fairly, in all material respects, the financial position of HUD as of September 30, 2005 and 2004 and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America.

The report identifies (a) two material weakness and six reportable conditions on internal controls and (b) one instance of non-compliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate them, and makes recommendations for corrective actions. During the course of the audit, OIG also identified several matters that are not material to the financial statements and are being separately communicated to HUD management.


Issue Date: November 7, 2005
Audit Report No.: 2006-FO-0002
File Size: 1.75MB

Title: Audit of the Federal Housing Administration's Financial Statements for Fiscal Year 2005 and 2004

This report presents the results of Urbach, Kahn, and Werlin LLP's audit of the Federal Housing Administration's (FHA) financial statements for the year ended September 30, 2005.

In Urbach, Kahn, and Werlin's opinion, the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 2005, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The report identifies two material weaknesses and one reportable condition on internal control, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. During the course of the audit, Urbach, Kahn, and Werlin also noted other matters that are not material to the financial statements and are being separately communicated to FHA management.


Issue Date: November 7, 2005
Audit Report No. 2006-FO-0001
File Size: 1.75MB

Title: Audit of the Government National Mortgage Association's Financial Statements for Fiscal Years 2005 and 2004

This report presents the results of the Office of Inspector General's (OIG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the years ended September 30, 2005 and 2004. In our opinion, the financial statements present fairly, in all material respects, the financial position of Ginnie Mae as of September 30, 2005 and September 30, 2004 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

In addition to the OIG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions in Ginnie Mae's internal controls and no reportable instances of noncompliance with laws, regulations, and provisions of contracts. The OIG noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae's management.


Issue Date: October 31, 2005
Audit Report No. 2006-DP-0002

Title: Review of Security Configuration of the FHA Unix Operation System (Report Not Available to Public)

We have completed a security configuration assessment of HUD's servers on which FHA financial applications reside. The objective of our audit was to review user access, security controls to files and directories, and configuration of network services of HUD’s Unix operating system. For criteria, we used recommendations from HUD Security Handbook 2400.25; Office of Management and Budget Circular A-130, appendix III; Government Accountability Office’s “Federal Information System Controls Audit Manual;” Department of Defense Unix Security Technical Implementation Guide, and National Institute of Standards and Technology's Special Publication SP 800-14 “Generally Accepted Principles and Practices for Securing Information Technology Systems.” We concluded from our assessment that HUD has generally implemented the Unix operating system configuration settings properly. However, weaknesses in the configuration of network services still exist, and user access, security controls to files and directories are not sufficiently tightened. Our report presents detailed results of our assessment and appropriate recommendations for corrective action that will improve HUD's overall security posture through recommended configurations. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Issue Date: October 7, 2005
Audit Report No.: 2006-DP-0001
File Size: 505KB

Title: HUD Compliance With Joint Financial Management Improvement Program Core Financial System Requirements for Cost Management

We audited certain components of the U.S. Department of Housing and Urban Development’s (HUD) financial system to determine whether the financial system is capable of performing the cost management function as defined in Joint Financial Management Improvement Program (JFMIP) publication number JFMIP-SR-02-01, “Core Financial System Requirements,” dated November 2001. We found that HUD’s core financial systems do not have the ability to perform all of the mandatory cost management functions specified in JFMIP SR-02-01, dated November 2001.

HUD’s core financial systems lack the ability to accumulate non-financial data that would be needed to internally calculate cost management information. Without this capability, HUD’s core financial system does not provide all of the non-financial data elements needed to support the integration of budget, cost, and performance measures. This information is obtained from sources that include both automated and manual processes, procedures, controls, data, software, and support personnel that are not integrated through a common database or electronically interfaced with the core financial system. We recommended that the Office of the Chief Financial Officer develop compliant cost management functional requirements that support the integration of budget, cost, and performance measures as part of the HUD Integrated Financial Management Improvement Project. While HUD disagreed with our recommendation, we obtained documentation from the Project that includes a mandatory functional requirement for the accumulation of non-financial data.


Issue Date: October 4, 2005
Audit Memorandum No.: 2006-DP-0801
File Size: 585KB

Title: OIG Reponse to Questions From the Office of Management and Budget Under the Federal Information System Management Act 2002

The Federal Information Security Management Act of 2002 (FISMA) directs the Office of the Inspector General (OIG) to perform an annual independent evaluation of HUD's information security program and practices. This memorandum presents the results of our evaluation of HUD’s compliance with FISMA.

HUD has made significant efforts to improve its system security program, but continued progress is needed to fully comply with federal requirements. HUD has appointed a chief information security officer, revised its information security policy, and completed certification and accreditation for more than 90 percent of its applications. However, the quality of the underlying documents and the actual certification and accreditation process varied by application. While a number of vulnerabilities were closed, additional vulnerabilities, identified through oversight activities, were not corrected before accreditation.

We found HUD program officials and system owners have not fully met their responsibilities as specified in FISMA section 3544(a). Also, HUD has not fully implemented an agencywide information system security program as specified in FISMA section 3544(b). Improvements are needed in maintaining an adequate system inventory, categorizing security impact level properly for information systems, providing sufficient training to program officials and contractor staff with specialized information security responsibilities, and developing and testing contingency plans.


Issue Date: September 30, 2005
Audit Report No.: 2005-BO-0002
File Size: 764.64.KB

Title: HUD Did Not Conduct a Front-End Risk Assessment and, Therefore, Fully Implement Controls for the Public Housing Mortgages and Security Interest Program

We audited the Public Housing Mortgages and Security Interest program’s process for granting security interest in $2.4 billion in as yet unappropriated Capital Fund grants. Our 2003 audit report, 2004 BO 1004, dated December 5, 2003, on the Capital Fund program administered by the Danbury Housing Authority, Danbury, Connecticut disclosed potential weaknesses in HUD Office of Public and Indian Housing’s internal controls over its Public Housing Mortgages and Security Interest program. Under the Public Housing Mortgages and Security Interest program, public housing authorities were approved to use security interests in future program grants as collateral for long-term debt instruments. Our objective was to determine whether HUD established adequate internal controls to safeguard funding before allowing public housing authorities to use security interests in future program grants.

HUD’s Office of Public and Indian Housing failed to perform a front-end risk assessment before allowing public housing authorities to use security interests in more than $2.4 billion in future Capital Fund program grants under HUD’s Public Housing Mortgages and Security Interest program. This occurred because the Office of Indian and Public Housing did not believe it was necessary to perform a front-end risk assessment of the Public Housing Mortgages and Security Interest program before establishing internal controls. Without conducting a front-end risk assessment the level of internal controls may be inadequate or ineffective. The lack of adequate internal controls created problems such as preventing HUD from establishing adequate policies and procedures for the program and from determining the proper level of HUD field office involvement required in the review, approval, and monitoring process. Furthermore, lack of internal controls lead to difficulties in monitoring changes made to modernization work subsequent to HUD’s approval of the work. HUD has approximately $94 million in financing proposals under review that should not be approved until a program risk assessment is completed, approved, and adequate internal controls are in place.

We recommend that HUD’s general deputy assistant secretary for public and Indian housing assure that HUD:

  • Complete a front-end risk assessment of the Public Housing Mortgages and Security Interest program. This will result in funds to be put to better use in the amount of $4.9 million.

  • Establish internal controls, including rules and regulations, for the Public Housing Mortgages and Security Interest program based on results of the front-end risk assessment.

  • Suspend approvals of financing proposals valued at $94 million if the front-end risk assessment is not submitted to and approved by HUD’s Chief Financial Officer by October 30, 2005.


Issue Date: September 13, 2005
Audit Report No.: 2005-LA-0001
File Size: 98.35KB

Title: HUD's Controls over the Single Family Preforeclosure Sale Program and Preforeclosure Sale Claims Need Improvement

We audited the U.S. Department of Housing and Urban Development's (HUD) preforeclosure sale program. The objectives of the audit were to (1) determine what abuses occurred within the preforeclosure sale program and how they impacted losses to the Federal Housing Administration insurance fund and (2) evaluate HUD's controls over preforeclosure sales and preforeclosure sale claim processing.

We found investors abused the HUD preforeclosure sale program and obtained properties through preforeclosure sales below fair market value contrary to HUD requirements. Based upon limited testing, we identified 102 properties that were sold through preforeclosure for at least $2.4 million less than their fair market value, resulting in excessive insurance claims to HUD. Additionally, HUD's claims processing system allowed for payment of at least 52 preforeclosure sale claims that were excessive by amounts totaling approximately $5.1 million. We attributed these conditions to inadequate controls over the preforeclosure sale program, especially in relation to controls over the appraisal and marketing process for the properties involved in the program, and inadequate controls within the claim payment system. We recommended that HUD implement controls to minimize abuse of the preforeclosure sale program and to ensure excessive preforeclosure sale claims are not paid.


Issue Date: August 22, 2005
Audit Report No.: 2005-DP-0007
File Size: 437KB

Title: Review of HUD’s Information Systems Certification and Accreditation Process

We completed an audit of the quality of the process for certifications and accreditations of the U.S. Department of Housing and Urban Development’s (HUD) information systems that were completed through the end of calendar year 2004. The objective of our audit was to assess the quality of the U.S. Department of Housing and Urban Development’s (HUD) process for certification and accreditation of its information systems. For criteria, we used recommendations from Special Publications issued by the National Institute of Standards and Technology (NIST), and requirements from the Office of Management and Budget (OMB) and Federal Information Processing Standards (FIPS): NIST Special Publication (SP) 800-37, "Guideline for the Security Certification and Accreditation of Federal Information Systems" and SP 800-53, "Recommended Security Controls for Federal Information Systems;" OMB Circular No.A-130, Appendix III, "Security of Federal Automated Information Resources;" and FIPS Publication 199, "Standards for Security Categorization of Federal Information and Information Systems." We concluded that the quality of the process for certification and accreditation of HUD’s information systems in calendar year 2004 was poor and that this resulted in presentation of inadequate certification and accreditation packages to the authorizing official. Because the packages were incomplete and did not contain the information necessary for the authorizing official to accredit HUD’s systems, no accreditations were made in calendar year 2004. Our report presents detailed results of our review. We recommended that the Chief Information Officer request that the Deputy Secretary appoint senior officials within the program and administrative offices as authorizing officials and direct them to complete certifications and accreditations for their systems in accordance with Office of Management and Budget (OMB) requirements and guidance for Federal agencies published by the National Institute of Standards and Technology (NIST). We also recommended that the Chief Information Officer ensure that policies and procedures for the certification and accreditation process are developed, approved, and implemented and that they address roles and responsibilities assigned during the process.


Issue Date: July 12, 2005
Audit Report No.: 2005 -DP-0006
File Size: 394.77KB

Title: Fully Implement the Active Partners Performance System

We audited the Active Partners Performance System to determine whether it has been fully implemented and is being used as intended. The audit was initiated because our auditors and investigators were unable to obtain needed information on multifamily program participants from the system. We found the Active Partners Performance System has been operational since 1999, but its use by principal participants has not been required. Consequently, the previous participation certification (Form HUD-2530, Previous Participation Certification) process has not been fully automated, and the U.S. Department of Housing and Urban Development (HUD) does not have a complete computer database of required participant information. We recommend that the Office of Multifamily Asset Management fully implement the Active Partners Performance System and ensure its use by all HUD multifamily housing program participants. The Director of the Office of Multifamily Asset Management concurs with our recommendation and has indicated that the Active Partners Performance System is to be fully implemented through mandatory use of the system by participants by October 2005.


Issue Date: May 18, 2005
Memorandum No.: 2005-NY-0001
File Size: 249KB

Title: Title I Loan Debt Collection Asset Recovery Division Financial Operations Center, Albany, NY

We completed an audit of Title 1 loan claims collection activity administered by the U.S. Department of Housing and Urban Development's (HUD) Financial Operations Center (Center), Asset Recovery Division, in Albany, New York. The objectives of the audit were to determine whether the Center was administering its Title 1 debt collection activities in: (1) compliance with applicable laws and regulations, and (2) an effective manner to provide optimal benefit to HUD. Our work covered Title 1 claim collection activity during fiscal years 2003 and 2004.

The audit disclosed that, while the Center was generally complying with applicable laws and regulations, there were weaknesses in controls over Title 1 debt collections. Specifically, (1) significant amounts of payments were received directly at the Center instead of at the established lock box or via electronic funds transfer; (2) adequate controls had not been established over the receipt, recording, and processing of collections at the Center, and (3) procedures for processing debt payments had not been updated. These deficiencies occurred because the Center's management reporting system did not capture the total volume of debt payments received and processed at the Center.

We recommended that the director of the Center establish and implement controls and procedures to ensure that (1) debtor payments are submitted directly to the lock box or are made via electronic funds transfer; (2) all incoming mail containing debt payments is opened at a single location within the Center and in the presence of two individuals, and (3) all payments received at the Center are properly recorded and reconciled to the lock box receipts. HUD agreed with our recommendations, and has planned, or already taken, corrective actions.


Issue Date: May 16, 2005
Memorandum No.: 2005-PH-0002
File Size: 1.16MB

Title: Interim Memorandum Report on the Office of Healthy Homes and Lead Hazard Control ’s Issuance of Its Fiscal Year 2004 Grants, Washington, DC

In response to a number of congressional inquiries and complaints received by our office, we are auditing the Office of Healthy Homes and Lead Hazard Control’s (Office of Healthy Homes) process for awarding fiscal year 2004 grants. The complainants alleged the Office of Healthy Homes inappropriately awarded its fiscal year 2004 Lead Hazard Control and Healthy Homes grants. Our objective was to determine whether the allegation in the complaints had merit. We also wanted to determine whether the Office of Healthy Homes followed appropriate procedures in awarding the fiscal year 2004 lead grants.

We found the complainants’ allegation had merit. We identified errors in the award process for all seven grant applications we reviewed. These errors caused four applicants (totaling $6,323,636) to either receive an award they were not entitled to or to lose an award they should have received. In large part, these problems occurred because the department established a deadline of September 30, 2004, to process and award the grants without having an effective process in place. To meet this deadline, the Office of Healthy Homes and its contractor did not always follow established procedures in evaluating and scoring the grant applications.

Additionally, we noted the Office of Healthy Homes’ decision to restrict its search for a contractor under HUD’s accelerated contracting process to small business and 8(a) firms severely limited the pool of qualified contractors. We found the contractor, whom the Office of Healthy Homes selected to evaluate and rate the grant applications, made a number of significant errors in processing the applications which compromised the integrity of the award process.

Based on our survey results, we question whether the remaining fiscal year 2004 grants were properly awarded only to eligible applicants. We believe the department needs to take immediate action to ensure the 2005 grant award process is completed according to the notice of funding availability requirements and HUD’s established grant processing procedures. We made a number of recommendations, that if implemented, will significantly improve the grant award process for 2005.


Issue Date: May 13, 2005
Audit Report No.: 2005-BO-0001
File Size: 2.10MB

Title: Office of Public and Indian Housing, Region 1 Boston, MA, Approved Incorrect Operating Subsidies for Several Public Housing Activities

We audited the U.S. Department of Housing and Urban Development (HUD) Office of Public Housing, Boston Hub’s review process for operating subsidy calculations for public housing agencies administering low-income public housing programs within Region 1. Our audit was initiated to review the operating subsidy calculations for public housing agencies within Region 1 for Federal fiscal years 2004 and 2005.

We found that the HUD Office of Public Housing, Boston Hub incorrectly approved $1,313,673 in operating subsidies for public housing agencies in Federal fiscal years 2004 and 2005. The Office of Public Housing, Boston Hub had not implemented a quality control process to ensure the accuracy of the operating subsidy determinations approved. As a result, the Office of Public Housing, Boston Hub provided some public housing agencies less than their eligible subsidy, while providing other public housing agencies more than their eligible subsidy. When OIG brought this issue to the attention of the Office of Public Housing, Boston Hub it immediately began corrective action. As of April 28, 2005, the Office of Public Housing, Boston Hub had submitted $932,939 in revisions to the Real Estate Assessment Center’s Financial Management Division, and $27,305 of these revisions had been processed.

We recommend that the Director of Public Housing, Boston Hub implement a quality control process to ensure the accuracy of the operating subsidy determinations approved, recover $446,148 in excess subsidies approved in Federal fiscal year 2004, and ensure that Real Estate Assessment Center’s Financial Management Division implements the $932,939 in revisions that HUD’s Office of Public Housing, Boston Hub submitted.


Issue Date: May 13, 2005
Audit Report No. 2005-DE-0001
File Size: 618KB

Title: HUD's Control Over Single Family Insurance Claims Allow Ineligible Payments and Delays in Resolving Post-claims Findings

We audited the process the U.S. Department of Housing and Urban Development (HUD) uses to pay Federal Housing Administration Single-Family insurance claims. The audit was part of our fiscal year 2004 Annual Audit Plan. We scheduled the audit because the annual dollar disbursements of Federal Housing Administration insurance claims represent a significant disbursement activity of the Department. HUD paid out almost $6.5 billion in fiscal year 2003 to settle claims for principal and interest on about 73,750 foreclosed properties

We wanted to determine whether HUD management and system controls over claims disbursements were functioning as designed and adequate to prevent payments for ineligible or unsupported costs.

For most Federal Housing Administration Single-Family insurance claims, HUD management and system controls are adequate and effective in ensuring that only eligible and adequately supported costs are accepted and paid. However, the controls do allow some ineligible interest payments and unnecessary delays in resolving post-claim findings. Our report contains two findings with recommendations requiring action by the Office of Housing to address these areas.


Issue Date: April 21, 2005
Audit Report No.: 2005-DP-0005

Title: Security of Windows 2000 server (Report Not Available to Public)

We have completed a security assessment of HUD's implementation of "Security of Windows 2000 Server." The objective of our audit was to assess HUD’s configuration of the Windows 2000 operating system for security and to assess backup and recovery practices. For criteria, we used recommendations from the following Special Publications issued by the National Institute of Standards and Technology: SP 800-43 "Systems Administration Guidance for Windows 2000 Professional;" SP 800-14 “Generally Accepted Principles and Practices for Securing Information Technology Systems;” and SP 800-34 “Contingency Planning Guide for Information Technology Systems.” We concluded from our assessment that HUD has generally implemented the Microsoft Windows 2000 operating system configuration settings properly. However, deficiencies in configuration security and backup and recovery practices were identified. Our report presents detailed results of our assessment and appropriate recommendations for corrective action that will improve HUD's overall security posture through recommended configurations. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Issue Date: April 12, 2005
Audit Report No.: 2005-SE-0001
File Size: 669.85KB

Title: Design and Implementation of the Public Housing/Section 8 Moving to Work Demonstration Program

We reviewed the U.S. Department of Housing and Urban Development's (HUD) design and implementation of the Public Housing/Section 8 Moving to Work Demonstration program. We wanted to know whether (1) the program tested ways to provide and administer housing assistance that reduced costs, promoted self-sufficiency, and increased housing choices, and (2) HUD had the authority to approve housing authority requests to make tenants enter new contracts with time-limited housing assistance.

HUD struggled to balance flexibility and accountability in the design and implementation of the Public Housing/Section 8 Moving to Work Demonstration program and relied on an existing system to collect tenant information. The existing system could not accept tenant information and was not adapted in time to support the interim evaluation, and as a result, HUD was not able to collect tenant information needed to measure interim program impacts on costs, family self-sufficiency, and housing choices as planned. In addition, HUD relied on existing assisted housing rules modified by Public Housing/ Section 8 Moving to Work Demonstration requirements. However, the modified rules did not ensure HUD (1) consistently monitored Moving to Work Demonstration housing authority activities and performance, and (2) obtained required Office of Management and Budget approval when collecting program information.

HUD obtained a legal opinion affirming its authority to approve housing authority requests to make tenants enter new contracts with time-limited housing assistance.

We recommend the Office of Public Housing Investments (1) develop a means for evaluating Public Housing/Section 8 Moving to Work Demonstration program performance, (2) require field offices to monitor program activities, and (3) obtain Office of Management and Budget approval for annual plans and reports.


Issue Date: March 29, 2005
Audit Report No.: 2005-PH-0001
File Size: 229.92KB

Title: Criteria Governing Local Government Participation in HUD’s Single Family Property Disposition Discount Sales Program

This report addresses internal control concerns with the U.S. Department of Housing and Urban Development’s (HUD) Single Family Property Disposition Discount Sales Program (Sales Program). Our audit (Report Number 2005-PH-1003) of the Town of Clifton (Town), a participant in the Sales Program, disclosed that requirements for local government entities may not fully protect HUD’s interests. Our objective in this review was to assess HUD’s criteria governing a local government entity’s participation in the Sales Program and to determine whether current Sales Program criteria adequately protect HUD’s interests.

We found HUD needs to strengthen its Sales Program criteria. HUD’s requirements for local governments to participate in the Sales Program are less stringent than those for a nonprofit entity. As a consequence, local governments can use the Sales Program for purposes other than HUD intended.

HUD intended that the Sales Program be used to benefit low- to moderate-income individuals. However, in our previous audit of the Town of Clifton, we found the local government participated in the Sales Program primarily as a means to raise revenue for the Town. The Town did this by using its government status to purchase the homes and then contracted a for-profit entity to manage its program. Although the Town of Clifton did not violate HUD requirements by participating in this manner, HUD never intended the Sales Program to be used for this purpose. If HUD had required local governments to follow the same requirements as a nonprofit entity, the Town of Clifton would not have been allowed to use the Sales Program primarily as a source of revenue.

We recommend HUD strengthen the established criteria governing local government entities’ participation under the Sales Program, by implementing criteria similar to which its nonprofits now operate under.


Issue Date: March 16, 2005
Audit Report No.: 2005-KC-0001
File Size: 130.57KB

Title: The Office of Federal Housing Enterprise Oversight Is Comparable to Other Federal Financial Regulators in its Allocation of Resources and Staffing

We completed an audit of the Office of Federal Housing Enterprise Oversight (Office). The Chairman of the House Appropriations Subcommittee on the Department of Veterans Affairs, U.S. Department of Housing and Urban Development, and Independent Agencies asked that we determine whether the Office of Federal Housing Enterprise Oversight's allocation of resources over the last 3 years has been comparable to that of other financial regulators, including the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. We were also asked to compare the Office's staffing to the staffing of these regulators, including the staff's responsibilities, education, expertise, salaries, and other compensation. To meet the request, we compared the Office's allocation of resources and staffing to those of four regulatory agencies: the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Housing Finance Board. We concluded that the Office has been comparable to other financial regulators in its allocation of resources and staffing for the past 3 years. The Office has allocated staff to its major functions at levels similar to those of the other regulators, and its staff's education and expertise have also been consistent with those of the others. In addition, while differences exist, the Office's salaries, other compensation (bonuses and awards), and benefits have been generally comparable to those of the other agencies.


Issue Date: March 4, 2005
Audit Report No.: 2005-DP-0004
File Size: 211KB

Title: HUD's Compliance with JFMIP Core Financial System Management and General Ledger Management Requirements

We audited certain components of the Department of Housing and Urban Development's financial system to determine whether it is capable of performing the mandatory Core Financial System and General Ledger Management functional requirements provided in the Joint Financial Management Improvement Program, "Core Financial System Requirements" JFMIP-SR-02-01, dated November 2001. This audit was conducted in support of OIG's assessment of HUD's compliance with the Federal Financial Management Improvement Act of 1996, as to whether HUD had implemented a Department-wide integrated financial management system. Determining compliance with "Core Financial System Requirements" JFMIP-SR-02-01 is an important portion of that assessment, but the final assessment depends on many other factors outside the scope of this review.

We found that the financial system used by HUD's Office of the Chief Financial Officer is capable of performing the mandatory Core Financial System and General Ledger Management functional requirements published in Joint Financial Management Improvement Program publication, "Core Financial System Requirements" JFMIP-SR-02-01, dated November 2001.

The results of this audit do not change the OIG's previous conclusion with respect to the existence of a material weakness with HUD's financial management system as reported in Audit Report Number FO-05-0003, "Additional Details to Supplement Our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Year 2004 Financial Statements."


Issue Date: February 2, 2005
Audit Report No.: 2005-DP-0003
File Size: 389.14KB

Title: Controls Over HUD's Purchase Card Program Need Improvement To Ensure Documentation and Monitoring Requirements Are Met

We audited the U.S. Department of Housing and Urban Development's (HUD) purchase card program to determine whether actions taken on the recommendations made in a 2003 audit report issued by the U.S. Government Accountability Office on HUD's purchase card program resulted in better program management and were effective in preventing or detecting inappropriate purchase card use.

We found that the actions taken to resolve the issues reported in the 2003 Government Accountability Office audit report have resulted in significant improvement in the overall management of the purchase card program. HUD has developed and put into operation several policies designed to improve purchase card transaction approval, review, monitoring, and training procedures. While these actions have reduced the frequency of improper and questionable purchase card transactions reported in the 2003 report, we found instances of questionable activity that are detailed in appendix B of this report. We also found administrative weaknesses associated with documentation maintenance, statement reconciliations, delegations of authority, and the payment of sales tax.

We recommend that HUD improve controls over purchase card program administrative functions by making sure monitoring procedures include detailed reviews of documentation maintenance, statement reconciliations, delegations of authority, and sales tax payments.


Calendar Year 2004

Issue Date: December 1, 2004
Audit Report No.: 2005-DP-0002
File Size: 722.2KB

Title: Controls Over HUD’s Travel Card Program Need Improvement

We audited the U.S. Department of Housing and Urban Development’s (HUD) travel card program to determine whether management controls were effective in preventing and detecting improper transactions. We found that approximately 6 percent of employee purchases and cash advances with travel cards were improper in that they were for personal use--purchases or cash advances not associated with official Government travel. We recommended that HUD improve its travel card training and monitoring programs.


Issue Date: November 15, 2004
Audit Report No.: 2005-FO-0003
File Size: 1.89MB

Title: Additional Details to Supplement Our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Year 2004 Financial Statements

Our report on HUD's fiscal year 2004 financial statements is included in HUD's Fiscal Year 2004 Performance and Accountability Report. For fiscal year 2004, OMB directed agencies to complete their Performance and Accountability Reports and submit them to the President, OMB and the Congress by November 15, 2004, thereby requiring that we complete our work by that date.

We were unable to express an opinion on HUD's fiscal year 2004 principal financial statements and the reasons are detailed in our report that is included in HUD's Fiscal Year 2004 Performance and Accountability Report. In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Year 2004 Financial Statements.


Issue Date: November 15, 2004
Audit Report No.: 2005-FO-0002
File Size: 1.38MB

Title: Audit of the Federal Housing Administration's Financial Statements for Fiscal Years 2004 and 2003

This report presents the results of KPMG LLP's audit of the Federal Housing Administration's (FHA) financial statements for the years ended September 30, 2004 and 2003.

In KPMG's opinion, the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 2004 and 2003, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The report identifies two material weakness and two reportable conditions on internal control, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. The report also identifies one reportable instance of potential noncompliance with laws, regulations, contracts and grant agreements that KPMG tested. During the course of the audit, KPMG also noted other internal control matters that are not material to the financial statements and are being separately communicated to FHA management.


Issue Date: November 12, 2004
Audit Report No.: 2005-FO-0001
File Size: 437.4KB

Title: Audit of the Government National Mortgage Association's Financial Statements for Fiscal Year 2004

This report presents the results of the Office of Inspector General's (OIG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the year ended September 30, 2004. In our opinion, the financial statements present fairly, in all material respects, the financial position of Ginnie Mae as of September 30, 2004 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

In addition to the OIG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions in Ginnie Mae's internal controls and no reportable instances of noncompliance with laws, regulations, and provisions of contracts. The OIG noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae's management.


Issue Date: October 19, 2004
Audit Report No.: 2005-DP-0001
File Size: 826. 9KB

Title: Fiscal Year 2004 Review of Information Systems Control in Support of the Financial Statements Audit

We reviewed general and application controls for selected information systems as part of the Office of Inspector General's (OIG) audit of the U.S. Department of Housing and Urban Development's (HUD) financial statements for fiscal year 2004. Our review was based on the Government Accountability Office (GAO) "Federal Information Systems Controls Audit Manual" and information technology guidelines established by the Office of Management and Budget (OMB), and the National Institute of Standards and Technology (NIST).

We found weaknesses and deficiencies in controls that could adversely affect the integrity, confidentiality, and availability of data. The weaknessess and deficiencies in controls stem from HUD's noncompliance with (i) requirements for internal controls established by the Office of Management and Budget (OMB), (ii) guidance for securing information systems issued by the National Institute of Standards and Technology (NIST), and (iii) HUD's own policies and procedures. We recommend that HUD take steps to ensure compliance with OMB requirements, NIST guidelines, and HUD's own internal policies and procedures.


Issue Date: October 8, 2004
Audit Report No.: 2005-FW-0001
File Size: 238.1KB

Title: Housing Authority Employee Pension Plan Forfeitures
Public and Indian Housing

The objective of the audit was to determine the amount of funds that could be put to better use if HUD changes its policy and requires public housing authorities with private defined contribution pension plans to return pension plan forfeitures to the benefit of contributing federal programs. HUD's current policy, contained in Handbook 7401.7G, Section 2-8e, allows housing authorities with defined contribution pension plans to reallocate forfeitures of separating employees to other plan participants or to reduce employer contributions or administrative costs. The policy that permits authorities to allocate forfeitures to other plan participants is inconsistent with the Office of Management and Budget's Cost Principles for State, Local, and Indian Tribal Governments, OMB Circular A-87. The cost principles require the federal government to receive an equitable share of any previously allowed pension costs that reverts or inures to the governmental unit. We believe that HUD could put about $5,300,000 a year to better use if HUD requires housing authorities to refund or credit pension plan forfeitures to the federal housing programs that incurred the original pension costs.

We are recommending the Office of Public and Indian Housing process the policy revision and promptly distribute the policy change to the housing authorities. Office of Public and Indian Housing Officials agreed with our recommendation and stated the final corrective action will be completed by April 30, 2005.


Issue Date: October 1, 2004
Audit Memorandum No. 2005-DP-0801
File Size: 2.9MB

Title: Annual Evaluation of HUD's Information Security Program

Our testing found weaknesses in network security that we reported to the Acting Director for IT Operations in a memorandum dated August 6, 2004. Other weaknesses in information system security are reported in our Audit Report titled "Fiscal Year 2004 Review of Information Systems Controls in Support of the Financial Statement Audit." Generally, we reported that improvements are needed in network security, contingency planning for information systems, and the agency-wide information system security program.

In our assessment, HUD has not timely documented and implemented an agency-wide information security program as specified in section 3544(b) of FISMA and has not fully established the minimum set of controls provided in Appendix III to OMB Circular A-130, Security of Federal Automated Information Resources.

However, HUD has taken steps to improve information system security and has made commendable efforts to improve its organization for an effective information system security program.


Issue Date: September 30, 2004
Audit Report No.: 2004-KC-0001
File Size: 351.1KB

Title: The Office of Federal Housing Enterprise Oversight Exceeded Its 60 Percent Statutory Requirement, But Has Weaknesses in Its Controls Over Allocating Costs for that Requirement

We completed an audit of the Office of Federal Housing Enterprise Oversight (OFHEO). The Chairman of the Subcommittee on the Veterans Administration, U.S. Department of Housing and Urban Development, and Independent Agencies asked that we determine whether OFHEO was complying with a statutory requirement included in the Veterans Administration / U.S. Department of Housing and Urban Development Fiscal Year 2004 Appropriations Act. The Act requires OFHEO to use at least 60 percent of its total funds appropriated for fiscal year 2004 for the examination, supervision, and capital oversight of Fannie Mae and Freddie Mac, the Government Sponsored Enterprises.

We were also asked to determine whether OFHEO is using its funds to meet the 60 percent requirement in a manner consistent with other financial regulators of financial institutions, such as the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. Further, the request asked us to determine whether the other regulators are using substantially more than 60 percent of their funding for the examination, supervision, and capital oversight of financial institutions.

We concluded that OFHEO is exceeding the statutory requirement to use no less than 60 percent of its fiscal year 2004 appropriated funds for examination, supervision, and capital oversight of Fannie Mae and Freddie Mac. However, neither OFHEO nor HUD can be certain whether OFHEO has significantly exceeded the 60 percent requirement, as it has reported, because OFHEO cannot adequately support its method for allocating employee expenses, or the resulting use of funds reported in its annual reports and budget requests.

We further determined that OFHEO is allocating its funds using a method that is consistent with other financial regulators, including the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. In addition, we concluded that OFHEO uses approximately the same percentage of its funds as these regulators for the purposes of examination, supervision, and capital oversight.

We recommend that the Director, Office of Federal Housing Enterprise Oversight, ensure that his staff establishes and implements controls to ensure that OFHEO accurately allocates and reports its use of funding. These controls should include a reliable method of maintaining actual employee time spent on each strategic objective and a method of ensuring that actual expenses are reflected in its reporting of funds used.


Issue Date: September 20, 2004
Audit Report No.: 2004-PH-0004
File Size: 106.2KB

Title: Contracts for Endorsement and Post-Endorsement Services

We reviewed the contracts that the Office of Single Family Housing used for endorsement and post-endorsement services over FHA-insured mortgage loans. Our audit objectives were to determine whether the terms of the contracts provide adequate controls to ensure efficient and cost effective delivery of the services, and if the pricing of the services at the four Homeownership Centers (HOCs) was reasonable. We did not identify any significant deficiencies. Accordingly, this report does not contain any reportable conditions or recommendations for corrective action.


Issue Date: August 25, 2004
Audit Memorandum No.: 2004-DP-0801
File Size: 268KB

Title: Funds Management Function Compliance with Joint Financial Management Improvement Program, "Core Financial System Requirements" (JFMIP-SR-02-01, November 2001)

We have completed an audit of the Department of Housing and Urban Development (HUD) and Federal Housing Administration core financial systems to determine whether they are capable of performing the mandatory Funds Management Function requirements provided in Joint Financial Management Improvement Program (JFMIP) Publication SR-02001, “Core Financial System Requirements,” dated November 2001. We did not make an assessment of the implementation of these functionalities. We also did not determine whether the optional, “value-added” requirements were met.

Our audit disclosed no instances in which the core financial systems used by HUD and the Federal Housing Administration were incapable of performing the mandatory Funds Management Function requirements provided in Joint Financial Management Improvement Program (JFMIP) Publication SR-02001, “Core Financial System Requirements,” dated November 2001.


Issue Date: July 12, 2004
Audit Report No: 2004-AT-0002
File Size: 2.31MB

Title: Effectiveness of the Departmental Enforcement Center

We conducted an audit to assess the effectiveness of the DEC's enforcement actions. The DEC had positive impacts in (1) improving the physical condition of HUD's multifamily portfolio, (2) imposing civil money penalties against multifamily project owners who fail to timely submit annual financial statements, and (3) implementing debarments against program violators. However, the audit identified the following conditions that warrant corrective action by the DEC.

  • The DEC is not functioning pursuant to its planned mission as the Department's one enforcement authority and has not implemented consistent enforcement standards for all HUD programs. The DEC had assigned its operating division staff almost exclusively to multifamily housing cases. The DEC also allowed the Office of Housing to control certain criteria for referrals to the DEC and certain enforcement decisions.

  • The DEC needs to improve its development and pursuit of administrative and civil sanctions, and referral of potentially criminal violations to the Office of Inspector General (OIG). The DEC did not pursue equity skimming violations that may have warranted enforcement sanctions. Audit tests identified 24 cases with violations under the equity skimming and double damage statutes, but the DEC did not document whether sanctions were considered and did not pursue enforcement actions beyond partial or full repayment of the misused funds. The DEC did not refer these equity skimming cases to OIG as required by HUD policy.

  • The DEC needs to eliminate certain unwarranted referrals from the Office of Housing and a premature case closure policy. These conditions inflated the DEC's workload and reported accomplishments, and wasted staff resources that could have been used on other referrals.

  • Since the merger of OGC and DEC, OGC had not filled five key vacant DEC positions because the OGC had exceeded its overall staff ceiling. DEC also could not document some reductions in its staff ceiling that resulted from the merger. The vacant OGC/DEC positions and reduced DEC staffing may have increased the burden on existing staff and hindered OGC/DEC's ability to manage and reduce its backlog of referred cases.

We recommended that OGC/DEC (1) revise its operations to conform with its published plans as HUD's one enforcement authority, or obtain written HUD authorization to revise its mission, (2) establish uniform enforcement standards for all HUD offices, (3) revise DEC procedures to ensure appropriate consideration of sanctions and referrals to OIG when required by HUD policy, (4) eliminate unwarranted referrals and a premature case closure policy, (5) fill key vacant positions, and (6) document the DEC staff ceiling.


Issue Date: June 29, 2004
Audit Report No.: 2004-SE-0001
File Size : 1.61MB

Title: Welfare to Work Section 8 Voucher Program

We completed an audit of the HUD's Welfare to Work (WtW) Section 8 Voucher Program. Our objectives were to determine if the Department's design, implementation, and monitoring was adequate to ensure that program requirements were met, and the Congressional goal to help eligible families make the transition from welfare to work was achieved.


Issue Date: June 18, 2004
Audit Report No.: 2004-FW-0001
File Size: 1.34MB

Title: Management Controls over Grantee and Subgrantee Capacity
Community Planning and Development

We have completed an audit of Community Planning and Development's (CPD's) management controls over the capacity of entities participating in CPD's programs. Specifically, we looked at CPD's management controls over selection and oversight of grantees and subgrantees. We conducted the audit based on a Congressional inquiry related specifically to the management controls over nonprofits.

CPD's management controls are not sufficient to provide reasonable assurance that only grantees and subgrantees with capacity participate in its programs. CPD has controls to minimize the risk that grantees and subgrantees lacking capacity receive CPD program funding. However, unverified assumptions, incomplete and outdated guidance, and limited on-site monitoring undermine these controls.

For competitive grants, CPD incorporates capacity into the Notice of Fund Availability as both a threshold factor and a rating factor. However, if the applicant is new or CPD has not monitored the applicant on-site, CPD accepts without verification that the application accurately reflects the applicant's capacity. Further, for some competitive grants, CPD set the threshold factor too low to be effective and excluded field office staff, who should be the most familiar with the grantees, from the selection process. As a result, CPD cannot be reasonably assured that it only funds grantees and subgrantees capable of effectively carrying out its programs in accordance with applicable laws and regulations.

CPD bases its monitoring goals and grantee risk analyses on unverified assumptions. CPD has never evaluated the aggregate risk associated with its programs or made a decision as to what level of risk is acceptable. Further, CPD has not tested its grantee risk analysis process to ensure it accurately identifies the highest risk grantees. As a result, CPD lacks assurance that it has the resources to perform the appropriate level of monitoring. Additionally, CPD cannot demonstrate that it is focusing limited resources on the highest risk programs and grantees.

We recommend that CPD provide guidance for grantees to evaluate capacity, involve field office personnel in decisions where appropriate, and increase minimum threshold requirements for capacity for competitive grant programs. Further, we recommend that CPD document the basis for establishing monitoring goals, evaluate risks, test its risk assessment process, schedule monitoring based on risks, increase training for field staff responsible for monitoring, and provide field offices with appropriate financial analyst capability.


Issue Date: May 7, 2004
Audit Report No.: 2004-DP-0003
File: Size: 4611KB

Title: Audit Report on Application Controls over Data Integrity within the Public and Indian Housing Information Center (PIC)

We have completed an audit of controls over the validity, accuracy, and completeness of data within the Public and Indian Housing Information Center (PIC). The objectives of our audit were to determine whether adequate controls were in place and, if so, whether they were operating effectively. We found that adequate controls are not in place over the identification of tenants. Specifically, tenant names and social security numbers are kept on a web server outside of HUD's secure network, making them highly vulnerable to hackers for identify theft, and that HUD does not sufficiently identify tenants who are not citizens or tenants who are citizens but do not provide a valid social security number. This condition, facilitated by HUD's creation of an Alternate ID Generator, increases opportunities for fraudulently obtaining housing benefits. We found that certain controls over the accuracy of data within PIC have been inadequate. PIC was initially populated with data that was not entirely complete and accurate, the annual reexamination process that would update and correct inaccurate and incomplete data within the PIC system (through submission of updated Form 50058 records) is not enforced, controls over the calculation of total tenant payment are not functioning and that PIC's Building and Unit module (inventory of public housing units) contains inaccurate data. We found that current efforts to address this problem are insufficient. As a result, PIC data alone would not be a reliable source of information for HUD's assessment of public housing agency performance and the calculation of funding for the Capital Fund. HUD has used other supporting or corroborating data when calculating funding for the Capital Fund. The effect of these issues has been accumulation of unreliable data, hindering achievement of PIC's original objectives, which were to provide a building and unit inventory for public and Indian housing, develop a Section 8 management assessment program and PIC risk assessment program, calculate the amount of subsidy authorized and disbursed to Public Housing Agencies (PHAs), and to monitor PHA performance and use of HUD funds.


Issue Date: April 23, 2004
Audit Report No.: 2004-DE-0002
File: Size: 287.4KB

Title: Use of Independent Contract Loan Officers to Originate FHA-Insured Loans, HUD'S Single Family Mortgage Insurance Programs

We have conducted reviews of eight HUD/FHA approved non-supervised loan correspondents (mortgagees) located in the Salt Lake City, Utah, and Denver, Colorado metropolitan areas. These mortgagees were selected for review primarily based on information that they were using independent contract loan officers to originate FHA-insured loans. The objective of our review was to determine whether the mortgagees use independent contract loan officers to originate FHA-insured loans.

Our review of these eight mortgagees located in Utah and Colorado disclosed that seven of the mortgagees were using independent contract loan officers to originate FHA-insured loans contrary to HUD requirements. Furthermore, five of the seven mortgagees established agreements with their independent contract loan officers, which were not in compliance with HUD requirements.

By using independent contract loan officers or non-employees to originate FHA-insured loans, these mortgagees could not, and in fact did not exercise direct control and supervision over their loan origination officers as required by HUD. The lack of direct control and supervision, coupled with quality control deficiencies, contributed to increased default and claim rates and therefore unnecessarily higher risk to the FHA insurance fund.

We are recommending that HUD/FHA issue appropriate guidance and specific instructions to HUD's Homeownership Centers and to FHA approved mortgagees requiring the use of mortgagee employed loan officers versus contractor or non-employees to originate FHA-insured loans. We also recommend that HUD require mortgagees to report their originating loan officer's income on IRS form W-2, which would include withholding of federal income tax, Social Security tax and Medicare tax.


Issue Date:March 17, 20004
Audit Memorandum No.: 2004-PH-0003
File Size: 280.4KB

Title: HUD's Oversight of the Philadelphia Housing Authority's Moving to Work Program Philadelphia, Pennsylvania

The objective of the audit was to determine if HUD adequately evaluated the Authority’s Moving to Work application and the adequacy of its controls for monitoring the Authority’s performance under the Program, focusing on the Program’s Section 8 component.

Our audit showed HUD accepted the Philadelphia Housing Authority into a new flexible housing demonstration program known as Moving to Work without restriction, before carefully evaluating the reasons for the Authority’s past poor performance in utilizing its Section 8 funding and the merits of its Moving to Work application. Although HUD was within its authority to accept the Authority into the demonstration program, by doing so it incurred a higher risk. As such, HUD should have established more stringent controls under its agreement with the Authority to ensure its interests were adequately protected and HUD funds would be used in the most efficient and effective manner that served the residents of the community.

Further, after HUD accepted the Authority into the Moving to Work Program, it did not provide adequate oversight of the development and implementation of the Authority’s Moving to Work Plans. In a prior audit (Audit Report 2003-PH-1803, dated September 24, 2003) we determined the Authority was not able to fully utilize its Section 8 Program due to limitations in the way it administered its Program. HUD’s local field office had similar concerns and the Authority’s Section 8 Management Assessment Program scores reflected its performance problems. HUD personnel said the Department was reluctant to interfere with the Authority’s Moving to Work Plans because it viewed this action as contrary to the philosophy of the demonstration program. Also, they said a lack of resources hindered HUD’s ability to adequately monitor the Authority’s performance under the Program.

In effect, HUD rewarded the Authority for its past poor performance by allowing it to participate in the new program in which it has the flexibility to use substantial Section 8 funds in non-traditional ways that may not provide the greatest benefit to thousands of families who continue to wait for housing assistance. Accordingly, we believe the Authority could put to better use an estimated $50.2 million of the Section 8 funding it will receive over the remaining four years of its Agreement by leasing-up the remaining rental housing vouchers in its inventory.


Issue Date: March 4, 2004
Audit Memorandum No.: 2004-KC-0803
File Size: 178.1KB

Title: Owner's Salary, Timberlake Care Center, Section 232 Nursing Home Review Kansas City, Missouri

During our audit of Timberlake Care Center, a nursing home located in Kansas City, Missouri, we identified an internal deficiency regarding HUD's approval of the project owner's salary. Our audit objective was to determine whether the Owner/Management Agent used project funds in accordance with applicable requirements. During the audit, we found that the owner was receiving a substantial salary from the property. We did not take exception to this in our audit report since HUD had previously approved the salary. However, the salary may not be reasonable and necessary because the project's administrator performs many of the normal management functions. During our review, we found no indication that the owner was performing any significant management functions that were reasonable and necessary to the operations of the project. HUD approved the salary during the loan origination process. Paying the owner a salary out of operating funds has further contributed to this project's negative surplus cash position. We recommended that HUD identify the management duties performed by the project owner and determine the appropriate amount of salary the owner should receive from operating funds for performing those duties, and restrict the amount paid for the owner's salary to the determined amount. HUD has provided a specific list of corrective actions to be completed by September 30, 2004 to ensure that an appropriate decision on whether or not to pursue changes in regard to the owner's salary is made. HUD has provided sufficient information for a management decision, therefore, we have input September 30, 2004 as the planned completion date for both recommendations in the Department's Audit Resolution and Corrective Action Tracking System.


Issue Date: March 2, 2004
Audit Memorandum No.: 2004-KC-0802
File Size: 204KB

Title: St. Louis Office of Multifamily Housing’s Monitoring of its Construction Analyst Contracts

We have completed a survey of the St. Louis HUD Multifamily office's outsourcing of its Construction Analyst duties. Our objective was to determine whether the St. Louis HUD Multifamily office properly and efficiently monitored its construction analyst contracts. We determined that overall the St. Louis HUD Multifamily office appears to have properly and efficiently monitored its construction analyst contracts, but did not always retain evidence of the receipt and review of the contract inspectors' trip reports. Also, field-monitoring reviews are not always documented. We recommended that HUD develop and implement procedures to ensure that required documentation is prepared during all field reviews and documentation is properly retained in the project files. HUD has provided a specific list of corrective actions to be completed by July 31, 2004 to ensure that all field reviews are documented in accordance with the MAP Guide and HUD Handbook 4460.1, and all trip reports are documented and retained in the project files. HUD's implementation of its planned actions should ensure that construction monitoring is better documented in the future. HUD has provided sufficient information for a management decision, therefore, we have input July 31, 2004 as the planned completion date for both recommendations in the Department's Audit Resolution and Corrective Action Tracking System.


Issue Date: February 25, 2004
Audit Report No.: 2004-DP-0002
File Size: 2449KB

Title: Application Control Review of the Tenant Rental Assistance Certification System (TRACS)

We have completed an audit of management, operational, and technical controls over the security of the Tenant Rental Assistance Certification System (TRACS). TRACS is a HUD mission critical financial and program information system that interfaces with other HUD systems. It receives HUD's highest ratings for sensitivity and criticality. Its goal is to collect tenant data for all Housing programs and to automatically provide payment for subsidy programs, where HUD is the contract administrator, based upon the contract and tenant data resident in the system.

We found deficiencies and weaknesses in controls over TRACS security:
· Access controls over the TRACS data and resources are inadequate.
· Controls over software configuration management are inadequate.
· Adequate security training has not been provided.
· Audit logs are not being utilized to detect security violations, performance problems, or to monitor and log user activities.
· Personnel security practices pose a risk of unauthorized access to TRACS.
· There is a lack of segregation of duties performed by key personnel.

The effect of the deficiencies and weaknesses in controls is exposure of TRACS data to unnecessary risk of loss of confidentiality, integrity, and availability.

The Office of Multifamily Housing has taken action to correct some of the weaknesses identified during our review. However, additional corrective action is needed. Our report contains recommendations for the Assistant Secretary for Housing and the Assistant Secretary for Administration/Chief Information Officer to improve controls over the security of TRACS.


Issue Date: February 20, 2004
Audit Memorandum No.: 2004-PH-0002
File Size: 278.9KB

Title: Philadelphia Homeownership Center Quality Controls Over Single Family Loan Insurance Process, Philadelphia, Pennsylvania

As part of our national review of the Homeownership Centers (HOCs), we reviewed the Philadelphia HOC’s system of quality controls over its FHA Single Family Loan Insurance Process. The objective of the audit was to examine the integrity of the HOC’s and its contractors’ system of quality controls over mortgage loans submitted for Federal Housing Administration (FHA) insurance endorsement. The scope of the review examined the services of the HOC’s endorsement and post-endorsement contracts as well as the HOC’s monitoring of those services.

We identified two significant weaknesses in the HOC’s monitoring of the endorsement and post-endorsement processes. Specifically, we found the HOC was not aware its contractors were not performing the required number of quality control reviews specified in their contracts. Further, the HOC staff did not accurately measure the post-endorsement contractor’s performance level in determining what payments the contractor was entitled to receive. As a result of inadequate monitoring, the HOC: overpaid the endorsement contractor $75,387 ; overpaid the post-endorsement contractor $326,572; and increased the risk that HUD will insure unacceptable loans. Management action to correct these deficiencies will put $144,944 to better use over a 12-month period.

We recommended the HOC improve controls related to monitoring reviews of the endorsement and post-endorsement contractors. Also, we recommended the recovery of $401,959 for reviews not performed or not performed at the acceptable performance level.


Issue Date: February 10, 2004
Audit Report No.: 2004-BO-0001
File Size: 936.9 KB

Title: Review of the Home Equity Conversion Mortgage Program New England Region

We have completed a review of the Home Equity Conversion Mortgage (HECM) Program. The specific objectives were to: (a) assess the adequacy of internal controls; (b) identify areas susceptible to material deficiencies, problems or weaknesses; and (c) determine whether a comprehensive audit was warranted, including any follow-on audit work at other locations. Our review was limited to loans endorsed for insurance in the New England Region (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) between October 1, 1999, and September 30, 2002. The New England Region is considered a high priced housing market, which represents a potentially higher risk for HUD, because the maximum dollar amount that HUD will pay on a claim for insurance benefits is based on a property's value.


Issue Date: February 6, 2004
Audit Report No.: 2004-AO-0001
File Size: 1.09MB

Title: Award and Administration of Lead-Based Paint Hazard Reduction Grants

In response to a hotline complaint, we completed an audit of the Office of Healthy Homes and Lead Hazard Control (OHHLHC) grant award and administration process. Our audit objectives were to determine whether: (1) grants awarded based on unsolicited proposals were properly evaluated; (2) grants were extended and increased based on sufficient evaluation and proper justification; and (3) OHHLHC efficiently and effectively expended grant funds appropriated by Congress.

Our review disclosed that OHHLHC had (1) awarded grants without evaluating the unsolicited proposals and did not maintaining a complete log of all such proposals submitted for consideration, (2) approved requests for grant amendments for award increases and extensions without adequately evaluating the grantees' requests and documenting the evaluation, and (3) not ensured that grantees timely expended funds.

We recommended that the Director of OHHLHC implement stronger controls over the award and administration of unsolicited proposals, grant amendments and unexpended balances. The Director of OHHLHC concurred with all 10 recommendations and provided management decisions outlining the actions planned and taken to implement our recommendations.


Issue Date: January 15, 2004
Audit Report No.: 2004-BO-0006
Files Size: 1.07MB

Title:Review of the Administration of the Portability Features of the Section 8 Housing Choice Voucher Program

We completed an audit of the portability features of the Section 8 Housing Choice Voucher Program. Our overall objective was to determine whether housing authorities within the six New England states were administering the portability features of Section 8 Housing Choice Voucher Program effectively and efficiently. An additional objective was to identify data problems within the Multifamily Tenant Characteristic System module of the PIH Information Center (PIC) System. Our report contains two findings that discuss: (1) Ineffective Administration of the Section 8 Housing Choice Voucher Program. and (2) Inaccurate or Incomplete Data in the PIH Information Center System.


Issue Date: January 13, 2004
Audit Report No.: 2004-AT-0001
File Size: 1.06MB

Title: Public Housing Agency Development Activities

We conducted a review to determine whether HUD had adequate management controls to assess PHA development activities. We found that HUD often was unaware of the extent to which activities with related nonprofit organizations impacted PHA operations and of the numerous Annual Contributions Contract (ACC) violations associated with them. HUD did not have mechanisms to readily identify or monitor such activities, nor has staff adequately trained to detect improper transactions. Further, even when field offices did become aware of improper activity, they did not aggressively pursue corrective actions to stop the activities or recover funds. PHAs did not fully disclose activities with related nonprofit organizations in their financial statements and Independent Public Accountants did not include findings when those activities violated ACCs or other requirements. PHAs also claimed to misunderstand HUD's rules. The impact of known and potential violations is high. Our analysis of key account balances from PHAs' audited financial statements identified 777 PHAs with indicators of possible unauthorized development activities. Eleven PHAs recently audited by OIG and four PHAs we reviewed for this audit, all of which had unauthorized development activities, were included in the 777 PHAs. The OIG audits questioned over $16 million. For the 777 PHAs, the potential risk to the low-income public housing program alone could be $600 million or more. The potential negative impact of the inequitable agreements is unknown, but also could be substantial. We believe HUD needs to take immediate steps to identify PHAs involved in nonprofit development activities, halt deals that violate the ACCs, and begin training its own staff and the public housing community on the legal avenues for developing low income housing through nonprofit affiliates.


Calendar Year 2003

Issue Date: December 22, 2003
Audit Memorandum No.: 2004-KC-0801
File Size: 1.03MB

Title: Corrective Action Housing Subsidy Payments, Office of Housing
Audit Report No.00-KC-103-0002

We have completed a Corrective Action Verification on Recommendations 1A and 2A in Audit Report number 00-KC-103-0002, Housing Subsidy Payments. Our objective was to determine whether the Department is making or has made adequate progress towards achieving the goals it identified in the Management Decisions and Corrective Action Plan from the Housing Subsidy Payments Audit. We found that, while the Department is making progress towards achieving its goals for Recommendation 1A, it needs to develop revised management decisions to accurately reflect its adjusted plans and realistic dates for completing those plans. Additionally, management erroneously reported as complete actions to close Recommendation 2A. As a result, we are re-opening Recommendation 2A. Management provided us a revised management decision with their formal comments; therefore, the final report does not contain a recommendation.


Issue Date: December 19, 2003
Audit Report No.: 2004-FO-0003
File Size: 4.44MB

Title: Audit of U.S. Department of Housing and Urban Development Financial Statements for Fiscal Years 2003 and 2002

This report presents the results of OIG's audit of the Department of Housing and Urban Development's (HUD) financial statements for the fiscal years ended September 30, 2003 and 2002.

In OIG'S opinion, based on our audit and the reports of other auditors, the financial statements present fairly, in all material respects, the financial position of HUD as of September 30, 2003 and 2002 and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America.

The report identifies (a) two material weakness and seven reportable conditions on internal controls and (b) one instance of non-compliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate them, and makes recommendations for corrective actions. During the course of the audit, OIG also identified several matters that are not material to the financial statements and are being separately communicated to HUD management.


Issue Date: December 19, 2003
Audit Report No.: 2004-FO-0002
File Size: 642.1KB

Title: Audit of the Government National Mortgage Association's Financial Statements for Fiscal Years 2003 and 2002

This report presents the results of the KPMG LLP audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the years ended September 30, 2003 and 2002. In KPMG's opinion, the financial statements present fairly, in all material respects, the financial position of Ginnie Mae as of September 30, 2003 and 2002 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

In addition to KPMG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses in Ginnie Mae's internal controls and no reportable instances of noncompliance with laws and regulations. KPMG noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae management.


Issue Date: December 15, 2003
Audit Report No.: 2004-DE-0001
File Size: 977.4KB

Title: Indemnification for Claims on Single Family Insured Loans Department of Housing and Urban Development's Single Family Insurance Program

We have completed an audit of the indemnification for claims on Single Family insured loans. We selected the audit because of concerns we had with the collection of losses from claims where indemnification agreements are in place. The assignment was on our annual audit plan. Our overall audit objective was to evaluate the controls in place to ensure indemnification agreements are adhered to, and the lender reimburses HUD for losses incurred by HUD when a claim is paid.

Our report contains three findings with recommendations requiring action by your office. The three findings address the billing and collection process, and the data entry of indemnification information into HUD systems.


Issue Date: December 1, 2003
Audit Report No.: 2004-DP-0001
File Size: 811.3KB

Title: Final Audit Report on Fiscal Year 2003 Review of Information Systems Controls in Support of the Financial Statements Audit

We have completed our review of selected information systems general and application controls in support of the fiscal year 2003 financial statements audit. Our review was based on the General Accounting Office "Federal Information Systems Controls Audit Manual," and information technology guidelines established by the Office of Management and Budget (OMB), and the National Institute of Standards and Technology (NIST).

Our review found information systems controls weaknesses that could negatively affect the integrity, confidentiality, and availability of computerized data. This is due to HUD's noncompliance with Federal requirements and standards, as well as HUD's own internal policies and procedures. We recommend that HUD take steps to ensure that OMB requirements, NIST guidelines, HUD's own internal policies and procedures are implemented.


Issue Date: November 26, 2003
Audit Report No.: 2004-PH-0001
File Size: 156KB

Title: Final Memorandum Report on Procedures for Filing Uniform Commercial Code Continuation Statements

We audited HUD’s procedures for filing of Uniform Commercial Code Continuation Statements. Our audit objective was to determine whether HUD’s existing procedures for filing of Uniform Commercial Code Continuation Statements were effective.

During our limited review of Shawnee Hills, Incorporated (Audit Memorandum Report 2003-PH-1802), a not-for-profit company that managed several HUD assisted Section 202/811 properties, we found HUD’s West Virginia Field Office did not file Continuation Statements as required under the Uniform Commercial Code to protect all of HUD’s financial interests. In part, this oversight resulted because the applicable HUD Handbooks and related memorandum, which provide HUD staff with the policies and procedures to follow for filing Continuation Statements, are outdated and need to be appropriately revised and re-issued to staff. Under the Uniform Commercial Code, HUD must file a report periodically (every 5 years or as state law requires) to assure that a lien on chattels remains in effect until the mortgaged property is paid in full or foreclosed. A chattel is any article of tangible property other than land, and buildings such as office furnishings, furniture, or capital equipment.

Under an internal HUD Agency reorganization in 1998, HUD’s Regional Accounting Divisions were eliminated, and its function of maintaining a tickler system to advise the Loan Management Branch of the date when Continuation Statements need to be filed was not assumed by or transferred to another HUD division. Further, HUD never revised its procedures nor updated its handbooks and related directives to provide staff with appropriate guidance under its new organizational structure. As a result, HUD’s financial interests in chattels are not fully protected and this problem is not limited to the West Virginia Field Office.

We recommended HUD’s Assistant Secretary for Housing and Deputy Chief Financial Officer coordinate efforts to ensure existing policies and procedures for preparing and filing Uniform Commercial Code Continuation Statements are appropriately updated, and distributed to responsible field office staff for immediate implementation.


Issue Date: November 25, 2003
Audit Report No.: 2004-FO-0001
File Size: 821KB

Title: Audit of the Federal Housing Administration's Financial Statements for Fiscal Years 2003 and 2002

This report presents the results of KPMG LLP's audit of the Federal Housing Administration's (FHA) financial statements for the years ended September 30, 2003 and 2002. In KPMG's opinion, the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 2003 and 2002, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended in conformity with accounting principles generally accepted in the United States of America. The report identifies one material weakness and two reportable conditions on internal control, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. During the course of the audit, KPMG also noted other matters that are not material to the financial statements and are being separately communicated to FHA management.


Issue Date: October 7, 2003
Audit Memorandum No.: 2004-AT-0801
File Size: 343.6KB

Title: Officer Next Door and Teacher Next Door Programs

Our recent work with the United States Attorney's Office, assisting with preparation of possible civil or criminal cases involving violations of the Officer Next Door and Teacher Next Door (OND/TND) Program requirements, identified management control weaknesses in homebuyer certification statements. Attorneys with the U.S. Attorney's Office noted weaknesses in the certification language that undermined the enforceability of program requirements. We worked with the attorneys to develop certification language that is enforceable and strengthens the integrity of the programs. HUD agreed to take immediate steps to incorporate the recommended changes.


Issue Date: September 30, 2003
Audit Memorandum No.: 2003-NY-0801
File Size: 25.8KB

Title: Corrective Action Verification, Asset Control Area Program, Audit Report Number 2002-NY-0001

We performed a Corrective Action Verification review of the actions taken on the recommendations in our nationwide audit report on the U.S. Department of Housing and Urban Development's (HUD) Asset Control Area (ACA) Program, which was issued February 25, 2002 under Audit Case Number 2002-NY-0001. The review stemmed from a Senate Committee Report that requested an audit of HUD's compliance with Section 1303 of Public Law 107-206. Therefore, the objectives of the review were to determine whether HUD is in compliance with Section 1303 of Public Law 107-206, and to evaluate the status of HUD's management decisions on the findings in our audit report on the Asset Control Area Program.

Our review disclosed that HUD has generally complied with Section 1303 of Public law 107-206 by initiating actions on September 15, 2002 to enter into new agreements and contracts with program participants. Our review also disclosed that HUD has taken required actions on the recommendations in our audit report on the ACA, with the exception of those relating to implementing regulations and providing training on the ACA Program.

We recommend that HUD reevaluate and adjust the Final Action target date for implementing the regulations for the ACA Program and ensure that all appropriate training is provided to HUD employees and program participants during Fiscal Year 2004. We also recommend that HUD continue to pursue approval of its proposed legislative changes to the ACA Program.


Issue Date: September 22, 2003
Audit Memorandum No.: 2003-DP-0803
Files Size: 372KB

Title: Annual Evaluation of HUD's Information Security Program

The Federal Information Security Management Act of 2002 (FISMA) requires the Office of the Inspector General (OIG) to perform an annual independent evaluation of HUD's information security program and practices. This memorandum presents the results of our evaluation in accordance with reporting instructions issued by the Office of Management and Budget (OMB).

We found HUD in general compliance with the requirements of FISMA except for Section 3544(b)(7)(C)(i). This section requires notification of the Office of Inspector General on security incidents. HUD has no procedure for notifying us of security incidents. Furthermore, HUD lacks adequate policies and procedures for documenting incident response activities. In the previous fiscal year (FY 2002), HUD reported 51 Denial of Service Attacks, 24 Probes, and 330 Internet Service Provider Attacks. In FY 2003, only one incident has been reported. Given the number of incidents reported in FY 2002, HUD's network vulnerabilities recently identified by a HUD subcontractor, and the numerous public warnings about worms affecting systems using Microsoft products, there may have been incidents during this fiscal year that have gone unreported.


Issue Date: September 10, 2003
Audit Report No.: 2003-DP-0001
File Size: 1.25MB

Title: Audit Report on the Public and Indian Housing Information Center (PIC)

We completed an audit of management, operational, and technical controls over the security of HUD's Public and Indian Housing Information Center (PIC). PIC is a technologically advanced web-based information system designed to facilitate a more timely and accurate exchange of data between Public Housing Agencies (PHAs) and local HUD offices by allowing PHAs to electronically submit information to HUD.

We found deficiencies and weaknesses in controls:

· There are inadequate queries and reports for monitoring and controlling user access to PIC. · A comprehensive process for monitoring and controlling PIC user access is not in place.
· Access controls over the PIC Security Administration Sub-Module are inadequate.
· There is no segregation of duties over the Security System Administration function.
· Controls for safeguarding confidential and sensitive PIC data are inadequate.
· Access controls for identifying and authenticating PIC users are weak.
· System and application audit logs are not being utilized for security and system maintenance purposes.

We recommend that PIH conduct a comprehensive vulnerability and risk assessment, develop a comprehensive security plan for PIC, and correct deficiencies and weaknesses in operational and technical controls as indicated in specific recommendations at the end of this report.


Issue Date: August 14, 2003
Audit Memorandum No. : 2003-AO-0004
File Size: 1.89MB

Title: Review of the Department of Housing and Urban Development's Staffing
9/30 Initiative

Between July and September 2002, HUD undertook Staffing 9/30, a large-scale recruiting and hiring effort. The goal of Staffing 9/30 was to maximize the staffing levels of the Department before the end of FY 2002, by filling mission critical positions. Because Staffing 9/30 was inadequately planned and directed, and information used to track hiring levels was unreliable, HUD ended up hiring too many people. In particular, HUD exceeded its staffing level set forth in the FY 2003 budget by about 300. As a result, a significant number of the positions filled were not mission critical positions as intended and HUD had to reprogram over $20 million to cover additional personnel costs. In other words, the results of Staffing 9/30 were inconsistent with program requirements and staffing needs. Moreover, the hiring actions were not based on the Resource Estimation and Allocation Process (REAP), which was to be the means to estimate, justify and allocate staffing resources. We recommended that HUD implement the corrective action plan submitted to Congress to ensure compliance with FTE ceilings in the future.


Issue Date: August 12, 2003
Audit Memorandum No.: 2003-AO-0003
File Size: 454.4KB

Title: Title I Loan Remittances Processed by HUD's Cash Management Branch
Washington, DC

In response to an anonymous hotline complaint, we completed an audit of the cash management practices used by the Cash Management Branch (CMB) to process Title I loan remittances. We evaluated CMB's handling of Title I remittances paid by check during the period October 1998 through January 2003. CMB has made significant progress in improving its cash management practices as a result of our review. However, during the audit period, CMB did not ensure that Title I remittances were properly handled, processed, and applied. Specifically, remittances totaling $602,608 were not applied to debtors’ accounts; at least $87,979 in payments were not deposited timely; and CMB did not adequately account for negotiable instruments or monitor the process used by Bank of America to process Title I payments.

We recommended that the Deputy Comptroller of the Federal Housing Administration improve its cash management and monitoring practices to ensure that Title I remittances are adequately handled, processed, and applied. The Federal Housing Administration agreed with our recommendations and has initiated action to correct the noted deficiencies.


Issue Date: July 31, 2003
Audit Memorandum No.: 2003-KC-0802
File Size: 244.8KB

Title: Inappropriate Home Ownership Center Instructions

During our audit of Management Solutions of America, Inc., a Philadelphia Home Ownership Center contractor, we identified an internal deficiency regarding Home Ownership Center instructions that differed from the HUD Handbook. As a result we issued this memorandum to report the details of the internal deficiency.

The Home Ownership Center gave the endorsement contractor guidance that deviated from HUD Handbook 4165.1 for loans submitted for insurance more than 60 days after closing. We recommended that the Director, Philadelphia Home Ownership Center require its contractor(s) to follow the requirements set forth in HUD Handbook 4165.1, Chapters 2 and 3 when approving late loan submissions for endorsement of request a formal waiver from Headquarters.


Issue Date: July 29, 2003
Audit Report No.: 2003-KC-0002
File Size: 810.3KB

Title: Office of Federal Housing Enterprise Oversight

We have completed an audit of certain administrative operations of the Office of Federal Housing Enterprise Oversight, the safety and soundness regulator for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Our audit objectives were to review the appropriateness of travel expenditures at the Office during the last four years, to determine whether the Office's compensation levels are comparable to other Federal financial regulators, and to evaluate whether space utilization is reasonable. The Office of Federal Housing Enterprise Oversight did not ensure that it used its funds at optimum efficiency, as the Office paid for lodging costs above the maximum per diem rate and also leased office space in excess of the government recommendations and averages.

The Office sometimes did not detect its employees' travel card misuse or travel voucher errors. We concluded that the Office's compensation levels are comparable to other regulatory organizations. We recommended that the Director of the Office of Federal Housing Enterprise Oversight improve its policies and procedures in order to ensure that its funds are used efficiently and ensure procedural changes that have been initiated for the review of travel related expenditures are fully implemented and effective.


Issue Date: July 15, 2003
Audit Memorandum No.: 2003-AO-0002
File Size: 338.3KB

Title: HUD Training Academy, Washington, DC

In response to an anonymous hotline complaint, we audited HUD's Training Academy (HTA) acquisition practices. Our audit objective was to determine whether HTA complied with applicable acquisition regulations when obtaining services from outside sources. We found that HTA did not comply with applicable acquisition regulations when obtaining services from outside sources. Specifically, with assistance from HTA, Watson Wyatt Worldwide (WWW), a subcontractor of Marasco Newton Group (Marasco), prepared a Statement of Work (SOW) and an unsolicited proposal to perform the work outlined in the SOW. Based on the unsolicited proposal, OPM awarded a $500,000 contract to Marasco non-competitively. In addition, HTA inappropriately used Standard Form 182, "Request, Authorization, and Certification of Training" (SF-182), and awarded nearly $150,000 to WWW without competing the services.


Issue Date: July 8, 2003
Audit Memorandum No.: 2003-SE-0802
File Size: 463KB

Title: Review of complaints regarding the Alaska ONAP's funding of Indian Housing Block Grants and awarding of Indian Community Development Block Grant funds

As part of an assessment of an anonymous complaint, we reviewed the Alaska Office of Native American Program's (AkONAP) processing of the Fiscal Year 2001 Indian Housing Block Grant (IHBG) funding for Amendment 1 to the Association of Village Council Presidents Regional Housing Authority's (AVCP) Indian Housing Plan. Our review objectives were to determine (1) whether Departmental Officials complied with financial requirements when reserving and obligating IHBG funds, and (2) if the Alaska Office of Native American Programs complied with programmatic departmental requirements when reserving and obligating IHBG funding. In addition, we reviewed AkONAP's rating, ranking, and awarding of Indian Community Development Block Grant (ICDBG) funds for Fiscal Year 2002 to determine if grants were fairly and properly awarded.

The Office of Native American Programs did not enforce program deadlines for the Indian Housing Block Grant submissions of the Village of Stony River and Native Village of Paimiut. In addition, AkONAP provided funding for these two Indian Housing Plans even though there was not an executed funding approval agreement as required. As a result, AkONAP improperly provided $126,242 to the Association of Village Council Presidents Regional Housing Authority (AVCP). AVCP is the Tribally Designated Housing Entity (TDHE) for the Village of Stony River and Native Village of Paimiut. AkONAP officials said the Office of Native American Programs did not consider this deadline requirement to be clear, and interpreted the requirements in the tribes' favor. Also, AkONAP relied on a funding log rather than official documents when it made funds available to the TDHE. In response to our draft report, AkONAP requested guidance from the Office of Native American Programs regarding deadlines, stated it will reevaluate AkONAP's decisions to accept the late submittals, and strengthened controls over funding approval.

Alaska ONAP did not maintain documentation regarding the initial rating and ranking process for awarding Indian Community Development Block Grant (ICDBG) funds for Fiscal Year 2002. As such, we could not determine the validity of the concerns alleging that AkONAP made improper changes to the ICDBG ratings and rankings. In response to our draft report AkONAP requested the Office of Native American Programs obtain a legal opinion as to whether documenting of the review process complied with the HUD Reform Act.


Issue Date: June 24, 2003
Audit Memorandum No.: 2003-KC-0001
File Size: 254KB

Title: Survey of HUD's Administration of Section 3 of the HUD Act of 19

We have completed a survey of HUD's administration of Section 3 of the Housing and Urban Development Act of 1968. The objective was to determine if HUD is administering Section 3 in accordance with the HUD Act of 1968. We determined that HUD does not have adequate controls in place to ensure it is meeting the intended purpose of Section 3 of the Act. However, at the time of our review we found that HUD is in the process of taking action to address the control weaknesses. We found that the Office of Fair Housing and Equal Opportunity needs to develop and implement necessary controls to ensure the Section 3 program is functioning as intended by the HUD Act of 1968 as well as a timeframe to ensure controls are implemented expeditiously. At a minimum, these controls should include:
o Developing a system to track recipients
o A method to evaluate the recipient reporting system
o Developing a system to monitor recipients that ensures contracts contain the Section 3 clause, recipient reporting system is effective and Section 3 residents are informed of and given available job and training opportunities.

The Office of Fair Housing and Equal Opportunity agreed with the two recommendations we made and developed various controls and timeframes to have the controls implemented to correct the program control weaknesses.


Issue Date: May 15, 2003
Audit Report No.: 2003-SE-0001
File Size: 490KB

Title: FHA Case File Review - Underwriting Practices and Loan Characteristics Contributing to FHA Loan Performance

We reviewed a statistical sample of 1,180 FHA case files to assess underwriting practices and loan characteristics contributing to FHA loan performance. Industry use of standardized credit scoring for mortgage loans, such as those provided by Fair, Isaac and Co., (FICO) is widespread. However, FHA underwriting does not rely on these scores. Current restrictions on bad credit are very flexible, but are often subjective. The subjective nature of the criteria can provide deserving families the opportunity for home ownership, but it can also be overly permissive and tolerant toward borrowers with bad credit histories. Credit scores provide evaluations of risk based on an objective formula. Our observations demonstrate that lower credit scores, or loans without scores, have much poorer loan performance than other loans. Subprime lending contributes to higher mortgage insurance premiums to the detriment of homebuyers who have maintained good credit. We are recommending that HUD (1) collect and track the credit scores in HUD systems to permit future studies and targeting of quality assurance activities, (2) consider streamlining the origination and endorsement process, and (3) consider strengthening endorsement procedures for loans with extended delays in submission, especially loans that have no credit scores.


Issue Date: May 7, 2003
Audit Report No.: 2003-CH-0001
File Size : 463KB

Title: HUD's Oversight of Empowerment Zone Program Office of Community Planning and Development Multi-Location Review

HUD's Office of Inspector General completed a multi-location audit of the Office of Community Planning and Development’s oversight of the Empowerment Zone Program. The objective of our audit was to determine whether HUD had an effective system for oversight and control of the Program. The audit was part of our Fiscal Year 2002 Annual Audit Plan. The audit was conducted based upon our review of six Empowerment Zones and two requests from Congress.

The United States House of Representatives’ Conference Report 107-272 directed HUD’s Office of Inspector General to review the use of Zone funds and to report our findings to the Senate Appropriations Committee. The United States Senate’s Report 107-43 also requested us to review the use of Zone funds and report our audit results to Congress.

Our audit was conducted at HUD Headquarters, six Zones, and HUD’s Field Offices of Community Planning and Development having jurisdiction for the six Zones we reviewed. The six Zones were Cincinnati, Ohio; Cleveland, Ohio; Huntington, West Virginia/Ironton, Ohio; Minneapolis, Minnesota; Norfolk/Portsmouth, Virginia; and St. Louis, Missouri/East St. Louis, Illinois.

We concluded that HUD’s Office of Community Planning and Development lacked an adequate system of oversight and control over its Program. Specifically, the Office of Community Planning and Development needs to improve its oversight of the Cities use of HUD funds (Empowerment Zone, Section 108 Loan Guarantee, and Economic Development Initiative Grant) for the Program. Additionally, HUD’s Office of Community Planning and Development did not: effectively assess the status and progress of the Cities’ Programs; and adequately verify the accuracy of the June 2001 and/or 2002 Annual Reports submitted by the Cities for their Programs. Consequently, the following items resulted from HUD’s inadequacies in oversight and controls: (1) HUD lacks assurance that the Cities were efficiently and effectively using their HUD funds; (2) HUD lacked accurate information to assess the Zones’ progress on meeting the goals of their Strategic Plans; and (3) the impression exists that the benefits of the Program were greater than actually achieved.

We recommend that HUD’s Assistant Secretary for Community Planning and Development assure that the Office of Community Planning and Development implements controls to correct the weaknesses cited in this report. HUD’s Office of Community Planning and Development did not provide written comments on our draft audit report.


Issue Date April 22, 2003
Audit Memorandum No.: 2003-FW-0803
File Size : 1.33MB

Title: Equity skimming from HUD supported "Projects:"
Haverstock I (Project No. 114-11002), Haverstock II (Project No. 114-35217), Haverstock III (Project No. 114-35240), and
Coolwood Oaks (Project No. 114-35275)
Houston, Texas

At the request of the Director of the Houston Multifamily Housing Program Center and to fulfill an escrow and payment agreement requirement, we attempted to conduct an audit of Haverstock I, Haverstock II, Haverstock III, and Coolwood Oaks. Our objective was to determine if the owner, Mr. Zieben, complied with HUD regulations, the Regulatory Agreements and the Compliance Agreement when he made: (1) transfers of funds between the projects and (2) payments from the projects to identity-of-interest companies. We did not conduct a full audit because the projects and identity-of-interest companies did not provide complete financial books and records.

We concluded that Mr. Zieben improperly transferred $230,000 out of Haverstock I, $190,000 out of Haverstock II and $25,000 out of Coolwood. In addition, we found that Mr. Zieben improperly withdrew funds from the projects by having his identity-of-interest companies bill the projects inflated amounts for materials and labor. Due to the lack of records, we could not determine the exact amount he overcharged the projects. However, the projects overpaid at least $304,087 for materials and up to $983,265 for labor. Mr. Zieben used the unauthorized distributions and improper billings to inappropriately enrich himself and his other business ventures.


Issue Date: March 31, 2003
Audit Report No.: 2003-DE-0001
Files Size: 2.12MB

Title: HUD Office of Multifamily Housing Assistance Restructuring's (OMHAR) Oversight of the Section 514 Program Activities, Washington, District of Columbia

We completed an audit of OMHAR's management and oversight of the Section 514 Program activities. We wanted to know what management controls OMHAR implemented to manage and oversee the Section 514 Program. We concluded that OMHAR's management did not establish appropriate management controls to oversee and manage the Section 514 Program, as required by the Office of Management and Budget's Circular A-123 and HUD's policy.

We also completed external audits of forty Section 514 Program participants (hereinafter referred to as Grantees) that received funding over the last 4 years under Section 514 of MAHRA. Section 1303 of the 2002 Defense Appropriation Act (Public Law 107-117) required the HUD Office of Inspector General to audit all Section 514 funded activities over the last four years. Consistent with the Congressional directive, we audited all grantees and reviewed their use of Section 514 funds for eligibility (per the legislation and the grantee's agreement with HUD) and/or the allowability (per Office of Management and Budget's Circular A-122) of costs with particular emphasis on identifying ineligible lobbying activities.

As a result of our audits, we identified that thirty-two of the forty grantees did not comply with the requirements of their grant agreements and/or the allowability of grant cost requirements of the Office of Management and Budget's Circular A-122. In our grantee audit reports, we identified $573,818 of ineligible costs and $1,634,541 in questioned costs for a total of $2.2 million. In addition, we identified that nine grantees used a portion of their Section 514 funds for lobbying activities directed at Congress, contrary to the explicit prohibition in Section 514. We also identified four grantees that used a portion of their Section 514 funds for lobbying activities at the state and local level. Section 514 did not include a prohibition on lobbying at the state or local level, but these costs are unallowable under OMB Circular A-122 guidance. We concluded that these conditions occurred because OMHAR's management emphasized the creation of the Mark-to-Market program and strong relations with the effected tenants not the management and oversight of the Section 514 Program. In addition, OMHAR staff generally lacked the knowledge and skills needed to manage and oversee a grant program.

The Assistant Secretary for Housing did not dispute the information and conclusions in this report. In addition, the Assistant Secretary provided management decisions for the recommendations contained in this report and for the 221 recommendations in the forty external Section 514 audits.

OIG agreed with the management decisions proposed by the Assistant Secretary, with an effective date of the issuance of this report.


Issue Date: March 18, 2003
Audit Memorandum No.: 2003-KC-0801
File Size: 927KB

Title: Inappropriate Home Ownership Center Instructions

This memorandum reports the details of an internal deficiency found during our audit of Choice Enterprises (Report number 2003-KC-1005). We discovered that the Denver Home Ownership Center provided instructions to the contractor that were not in accordance with HUD Handbook 4165.1 Rev 1, Chapter 3. The Government Technical Representative made several changes to extend the period that determines when a loan is submitted late and is, therefore, subject to additional documentation requirements. As a result, the contractor endorsed 19 loans valued at $1,807,534 with deficiencies that should have been detected if HUD Handbook 4165.1 Chapter 3 rules had been used. We recommended that the Director of the Denver Home Ownership Center seeks indemnification of the 19 improperly endorsed loans, and instructs contractors to follow HUD Handbook 4165.1 unless a waiver is obtained from Headquarters.


Issue Date: March 5, 2003
Audit Report No.: 2003-AT-0001
Files Size: 295KB

Title: Government National Mortgage Association, Review of Internal Controls
Washington, DC

Our nationwide audit of Ginnie Mae's internal controls identified several control weaknesses in its operations. These included: (1) not requiring issuers to accurately report FHA case numbers and use those numbers as its primary management control, (2) inadequate controls to ensure reliability of automated data, (3) inadequate procedures for matching data in Ginnie Mae's systems to FHA's systems, and (4) unreasonable time allowed for issuers to provide the Mortgage Insurance Certificate (MIC) to the document custodian. Because Ginnie Mae officials did not recognize the need to implement the controls, its database contained incomplete and inaccurate loan information and its risk of fraud was increased. These weaknesses allowed one issuer to submit over $21 million of uninsured and fraudulent loans into Ginnie Mae pools.

In response to our audit inquiries and through its own assessments of controls, Ginnie Mae implemented several new procedures designed to strengthen and improve operations. It began electronically confirming that all case numbers are in proper format and the case number string and check digit match. It improved the loan level edits to identify syntax and format errors so that GinnieNet will not allow pooling of loans that are not in the proper format. It began follow-up with issuers to improve the reliability of information on existing portfolios, and continued to improve its tracking of timely MIC recognition. Ginnie Mae agreed with our recommendation to match all FHA loans in its database (MBSIS) with FHA's database (SFIS) to ensure data is accurately reported and loans are insured, and expects to complete its first reconciliation by December 2003.


Issue Date: February 12, 2003
Audit Memorandum No.: 2003-BO-0802
File Size: 188KB

Title: New England Region's Officer Next Door and Teacher Next Door Property Disposition Program

The Office of Inspector General (OIG), Region 1, Office of Audit completed a review of a sample of New England homebuyers who participated in the Officer Next Door (OND) and Teacher Next Door (TND) program during the period January 1999 to January 2002. Our objective was to determine whether program participants complied with requirements of the program and to refer any violations to the OIG Office of Investigations for further action.

Our review of 89 OND/TND homebuyers disclosed 23 OND/TND homebuyers or 26 percent who did not comply with one or more of the program requirements. On May 28, 2002, we referred these 23 homebuyers to the OIG Office of Investigations for whatever action they felt necessary. As of January 31, 2003, Office of Investigations has administratively closed ten of these OND/TND cases and is working on the remaining thirteen OND/TND case files. While this memorandum closes the Office of Audit's interest in these cases, the Office of Investigation does have continuing interest in those cases that remain open.


Issue Date: February 5, 2003
Audit Memorandum No.: 2003-FW-0802
File Size: 183KB

Title: Time and Attendance Complaint HUD's Houston Office of Administration Houston, Texas

At the request of HUD's San Antonio Office Support Services Supervisor, we reviewed three Houston Office of Administration employees' time and attendance records from the first pay period in 1996 through the second pay period in 2002. The review disclosed that supervisors allowed two employees to have negative leave balances, allowed one employee to begin a 10-hour day at 9:30 a.m., advanced sick leave in small increments, and approved credit hours for work performed after 6:30 p.m. We recommend HUD adjust the leave balances for the three employees to the review results; provide time and attendance training to the supervisors, reiterate the importance of reviewing time and attendance documentation; and perform a leave audit for all Houston Office employees for whom the timekeeper kept time.


Issue Date: January 31, 2003
Audit Memorandum No.: 2003-FW-0801
File Size: 620KB

Title: HUD Houston Multifamily's Oversight of Wood Hollow Place Apartments, Project Number 114-11183, Texas City, Texas

We completed a limited review of HUD's oversight of Wood Hollow Place Apartments. The objective of the review was to determine whether Multifamily staff adequately monitored the project to ensure that the management agent complied with the Regulatory Agreement and HUD requirements. The Houston Multifamily staff did not adequately monitor the project nor properly maintain project files. As a result, HUD did not discover or question payments that violated the Regulatory Agreement and HUD requirements. We made three recommendations including that HUD staff receive direction, including training if necessary, on how to properly perform their monitoring tasks. The Director of the Houston Multifamily Office agreed with the recommendations and immediately implemented them.


Issue Date: January 31, 2003
Audit Report No.: 2003-FO-0004
File Size: 2498KB

Title: Audit of U.S. Department of Housing and Urban Development (HUD) Financial Statements for Fiscal Years 2002 and 2001

This report presents the results of OIG's audit of the Department of Housing and Urban Development's (HUD) financial statements for the fiscal years ended September 30, 2002 and 2001. In OIG'S opinion, based on our audit and the reports of other auditors, the financial statements present fairly, in all material respects, the financial position of HUD as of September 30, 2002 and 2001 and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations for the fiscal years then ended, in conformity with accounting principles generally accepted in the United States of America. The report identifies (a) 4 material weakness and 10 reportable conditions on internal controls and (b) 1 instance of non-compliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate them, and makes recommendations for corrective actions. During the course of the audit, OIG also identified several matters that are not material to the financial statements and are being separately communicated to HUD management.


Issue Date: January 31, 2003
Audit Report No.: 2003-FO-0003
File Size: 384KB

Title: Audit of the Government National Mortgage Association's Financial Statements for Fiscal Years 2002 and 2001

This report presents the results of the KPMG LLP (KPMG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the years ended September 30, 2002 and 2001. In KPMG's opinion, the financial statements present fairly, in all material respects, the financial position of Ginnie Mae as of September 30, 2002 and 2001 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In addition to KPMG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses in Ginnie Mae's internal controls and no reportable instances of noncompliance with laws and regulations. KPMG noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae management.


Issue Date: January 21, 2003
Audit Report No.: 2003-FO-0002
File Size: 2.91MB

Title: Audit of the Federal Housing Administration's Financial Statements for Fiscal Years 2002 and 2001

This report presents the results of KPMG LLP's (KPMG) audit of the Federal Housing Administration's (FHA) financial statements for the years ended September 30, 2002 and 2001.

In KPMG's opinion, the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 2002 and 2001, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The report identifies two material weakness and four reportable conditions on internal control, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. During the course of the audit, KPMG also identified several matters that are not material to the financial statements and are being separately communicated to FHA management.


Calendar Year 2002

Issue Date: December 20, 2002
Audit Memorandum No.: 2003-AO-0802
File Size: 639KB

Title: Limited Review of HUD’s Implementation of the Federal Activities Inventory Reform Act

We completed a limited review of HUD's implementation of the Federal Activities Inventory Reform (FAIR) Act of 1998. Our objective was to determine whether HUD implemented adequate procedures to compile, review, and submit the Commercial Activities Inventory (Inventory) to the Office of Management and Budget.

Our survey disclosed that for the three program offices we reviewed, HUD substantially complied with the requirements of the FAIR Act; therefore, we did not expand our review beyond the survey. However, we noted that HUD did not submit the Inventories to OMB timely. The FY 2000 Inventory, submitted on July 14, 2000, was late because the program and support offices submitted their Inventories to the CFO after the established due date. The FY 2001 Inventory was 1 month late because the CFO incorporated changes based on the review by HUD's new administration. Subsequent to our review, we determined that HUD's FY 2002 Inventory was submitted to OMB prior to June 30, 2002.


Issue Date: December 20, 2002
Audit Memorandum No.: 2003-BO-0801
File Size: 331KB

Title: Review of the Office of Housing's Use of the Financial Assessment Subsystem

We have completed a survey of the Office of Housing's use of financial statement assessments generated by HUD's Real Estate Assessment Center (REAC) on multifamily properties located in New England. The purpose of our review was to evaluate the usage of audited financial statements by multifamily housing staff in selected New England areas. Our work revealed that the Office of Housing needs more time to fully implement the use of REAC'S Financial Assessment Subsystem (FASS) in order to assess whether FASS is useful to Housing's objective of improving multifamily portfolios.


Issue Date: December 13, 2002
Audit Memorandum No: 2003-AO-0801
File Size: 174KB

Title: Controls Over Third Party Access to, and Disclosure and Use of Social Security Numbers

The Chairman of the House Ways and Means Subcommittee on Social Security asked the President's Council on Integrity and Efficiency to evaluate Federal agencies' control over third party access to, and disclosure and use of social security numbers (SSNs). To accomplish this, the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) and other participating OIGs were requested to select one program area and determine whether their agency:
* Made legal and informed disclosures of SSNs;
* Had appropriate controls over contractors' access to and use of SSNs;
* Had appropriate controls over other nongovernmental and noncontractor entities' access to and use of SSNs; and
* Had adequate controls over access to individuals' SSNs maintained in databases.


Issue Date: December 9, 2002
Audit Memorandum Report No.: 2003-FO-0001
File Size: 193KB

Title: Audit Memorandum - HUD's Energy Management and Conservation Program

We completed an audit of HUD's Energy Management and Conservation (EM&C) program as part of our responsibilities (42 USC, 8262) under the National Energy Conservation Policy Act (NECPA) of 1978 as amended by the Energy Policy Act of 1992 (the Act). The objectives were to determine: (1) HUD's compliance with the Act and other laws relating to energy conservation, and (2) whether HUD has management controls in place to ensure accuracy and reliability of energy consumption and cost data.

HUD generally complied with prescribed energy conservation laws, policies, and practices, and established adequate management controls to ensure the accuracy and reliability of energy consumption and cost data. However, HUD did not meet the 10 or the 20 percent energy consumption reduction goals for 1995 and 2000 respectively, as mandated by the Act. HUD identified a number of energy conservation measures and projects, but failed to consistently fund or determine whether the energy reduction measures would achieve the energy reduction goals mandated by the Act or Executive Order.


Issue Date: December 3, 2002
Audit Memorandum No.: 2003-DP-0802
File Size: 283KB

Title: Review of General Information Technology Controls at ACS


This memorandum provides the results of our limited review of the general controls over the information systems operated and maintained for Ginnie Mae by Affiliated Computer Services – Governmental Services, Inc. (ACS). Our review was made in response to a request from Ginnie Mae. This memorandum provides the results of our limited survey work of the general controls at ACS.

Our review found that security over certain server and application access controls can be improved. We also found that required semiannual testing of the disaster recovery process for one (the webserver) of the three major ACS contracted services was not being performed. We have made five recommendations to Ginnie Mae to improve internal controls in these areas


Issue Date: December 3, 2002
Audit Memorandum No.: 2003-PH-0801
File Size: 209KB

Title: Assessment of HUD's Progress in Implementing the Resource Estimation and Allocation Process (REAP) and Total Estimation and Allocation Process (REAP) and Total Estimation and Allocation Mechanism (TEAM) Components of its Human Resource Management System

We completed a review of the Department's progress in implementing the Resource Estimation and Allocation Process (REAP) and the Total Estimation and Allocation Mechanism (TEAM) components of its human resource management system. The Chief Financial Officer's (CFO) Office of Budget is responsible for the coordination and implementation of the system. Our primary objective was to assess the Department's progress in implementing REAP and TEAM, subsequent to the Office of Inspector General (OIG) September 2000 REAP review.

Generally, we found the Department has made significant progress in developing and implementing the key components of its human resource management system since September 2000. The Department completed the REAP studies in January 2002, began implementing the time reporting component of TEAM in the third quarter of fiscal year 2002, and anticipates the allocation module of TEAM will be implemented in the first quarter of fiscal year 2003. The Department now needs to develop a comprehensive strategic workforce plan that includes elements as to how the data from the REAP studies and TEAM system will be used to plan and allocate its human resources among its various operating components.


Issue Date: October 30, 2002
Audit Memorandum No.: 2003-DP-0801
File Size: 303KB

Title: AUDIT MEMORANDUM - Annual Evaluation of HUD's Information Security Program

We completed an audit of the Department of Housing and Urban Development's (HUD's) information security program and practices as required by the FY 2001 Defense Authorization Act (P.L. 106-398) Title X, subtitle G, "Government Information Security Reform (GISRA)." The Act requires that the Office of Inspector General (OIG) perform an annual independent evaluation of the Department's information system (IS) security program leading to a conclusion regarding its overall effectiveness. The purpose of the Act is to provide a comprehensive framework for establishing and ensuring the effectiveness of information system security programs, including the management, oversight, and controls over information resources that support Federal operations and assets.


Issue Date: October 28, 2002
Audit Memorandum No.: 2003-DE-1003
File Size 5.29 MB

Title: Congressionally Requested Audit of the June 1998, Memorandum of Understanding between HUD’s Office of Multifamily Housing and the Corporation for National Service

We completed an audit of the $2.4 million provided by HUD to the Corporation for National Service (Corporation), under a June 1998 Memorandum of Understanding. We performed the review at the direction of Congress. We wanted to know if VISTA members' activities, funded under the Memorandum of Understanding, were eligible under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). We reviewed 21 of the 53 VISTA projects supported by HUD funding. We identified that the Corporation approved VISTA projects with goals/objectives that did not comply with MAHRA or the HUD Memorandum of Understanding. In addition, we identified that four of the 21 projects provided ineligible assistance under MAHRA. We determined that the Corporation expended at least $57,916 to fund these ineligible activities. In addition, we could not determine the eligibility of the assisted HUD multifamily projects because the VISTA sponsors' quarterly reports lacked sufficient detail to make a determination. As a result, VISTA members were utilized to further the goals and objectives of the National Alliance of HUD Tenants. In addition, HUD cannot be sure that the projects assisted were eligible under MAHRA. The Corporation did not establish adequate management control to ensure only items eligible under MAHRA and the Memorandum of Understanding received assistance. In addition, the Corporation did not prepare or submit the required quarterly reports per the Memorandum of Understanding.

We did not identify lobbying activities by the VISTA members.

Our report contains two recommendations to address the issues identified in the report and strengthen management controls over future agreements between HUD and the Corporation.

In conducting the audit, we reviewed the Corporation's accounting records, and other documents supporting the expenditures of Section 514 funds. According to the Corporations records, HUD provided funding to 53 sponsoring organizations. The funding provided 262 VISTA members for 100 VISTA projects. We reviewed 21 of the 53 project sponsors' records (the sample represented 97 of the 262 VISTA members activities). Specifically, we reviewed the VISTA project sponsors' 1) applications, 2) Memorandum of Agreements, and 3) quarterly reports. We interviewed Corporation staff members and HUD staff responsible for the Section 514 funded VISTA member activities. Our audit scope did not include the process or method used by HUD to award the February 1995 Interagency Agreement or the June 1998 Memorandum of Understanding to the Corporation. We also reviewed the requirements in MAHRA, HUD's Memorandum of Understanding, the VISTA member Handbook, the Federal regulations applicable to the Corporation on lobbying, and HUD and the Office of Management and Budget's guidance on the establishment of management controls over program activities.

The audit covered the period June 12, 1998 through June 2002. We reviewed the $2.4 million provided by HUD, of the originally intended $3.0 million. Due to the funding shortfall, the Corporation used its own funds to continue funding VISTA members' activities after December 31, 2001. Therefore, our review includes activities funded in part with Corporation funds. We performed the fieldwork at the Corporation's Office located at 1201 New York Avenue, NW, Washington, District of Columbia during July 2002.


Issue Date: October 11, 2002
Audit Memorandum No.: 2003-AO-0001
File Size 410KB

Title: Review of the Financial Activities of the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century

At the request of the Senate Committee on Banking, Housing, and Urban Affairs and House Committee on Financial Services, we completed an audit of the financial activities of the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century (Commission). The objective of our audit was to determine if the Commission expended funds in compliance with Federal laws. To accomplish this objective, we examined financial records, contracts, invoices, travel, and personnel records; interviewed Commissioners and Commission staff; and reviewed laws applicable to the Commission. We are addressing this report to the CFO's office as a means of conveying our audit results and recommendations to the Administrator of General Services under the Federal Advisory Committee Act. This report contains no recommendations to HUD nor is HUD required to follow up on corrective actions taken.


Issue Date: September 30, 2002
Audit Memorandum No.: 2002-SE-0803
File Size 954KB

Title: Review of HUD's approval of an insured mortgage for a Section 232 Project J.A.M. Davis Incorporated, doing business as Loganhurst Health Care, Spokane, Washington

We reviewed the Seattle Office of Housing's approval of an insured mortgage for the Loganhurst Health Care residential facility to determine if the Office of Housing followed HUD's mortgage credit requirements and prudent underwriting practices when reviewing and approving the application for insurance. The review found that the Seattle Office of Housing approved insurance for a $3,995,000 loan for a residential care facility that was financially unstable. This occurred because HUD staff did not fully follow the applicable HUD handbook requirements when it processed and approved the loan. The owner subsequently diverted over $177,000 in project operating funds to pay back loans and other non-project costs that were incurred in order to obtain approval for the loan, and the property soon went into default and foreclosure. The Seattle Multifamily Hub appears to have implemented adequate controls that should prevent a reoccurrence of this situation.


Issue Date: September 27, 2002
Audit Report No.: 2002-DP-0002
File Size 578KB

Title: Audit Memorandum Report - Review of Departmental IT Security Plans

We have completed a review of security plans prepared for HUD's mission critical systems. This review was made in conjunction with the OIG's FY 2001 Financial Statement Audit and as part of the OIG's annual independent evaluation of the overall effectiveness of HUD's security program as required by the Government Information and Security Reform Act (GISRA). The objective was to determine whether security plans prepared for HUD's critical information systems were compliant with OMB Circular A-130 and consistent with National Institute of Standards Technology Publication (NIST) 800-18.

Our review found that the security plans for mission critical systems did not meet the requirements or guidelines of either OMB Circular A-130 or NIST Publication 800-18. Also, HUD has not updated the Department's information security policies and procedures for preparing security plans to conform to current OMB Circular A-130 and NIST Publication 800-18 guidelines. Additionally, the Office of the Chief Information Officer (OCIO) was not coordinating and sharing with the responsible Program Area Officials the results of a contractor's review of the Department's security plans for appropriate corrective action. Without adequate security plans and proper coordination between the OCIO and the Program Areas, the Department is at risk that critical information systems will not be adequately protected against waste, loss, and unauthorized use.


Issue Date: September 25, 2002
Audit Report No.: 2002-SE-0001
File Size 486KB

Title: Follow up of Down Payment Assistance Programs Operated by Private Nonprofit Entities

Based on a request from the General Deputy Assistant Secretary for Housing, we reviewed a statistical sample of 1,125 FHA case files to determine the percentage of borrowers receiving down payment assistance from nonprofit corporations, and to find out if the DAP-assisted loans are more likely to default than loans without DAP assistance. For these types of loans, the seller or builder reimburses the nonprofit organization for the assistance. The audit found that the use of DAP-assisted loans has increased and is now widespread. In addition, DAP-assisted loans have a greater tendency to default than unassisted FHA loans. The review also found that information in HUD's Single Family Data Warehouse is inaccurate, and that stronger controls are needed to ensure that lenders enter correct information so that HUD can accurately evaluate the performance of DAP-assisted loans and the associated risk to the FHA fund. We recommended that HUD consider implementing a rule prohibiting seller-derived down payment assistance loans, and strengthen controls to improve the accuracy of the Single Family Data Warehouse.


Issue Date: July 31, 2002
Audit Memorandum No.: 2002-SF-0801
File Size 1,417KB

Title: HOME Investment Partnerships Program

We completed an internal audit survey of the HOME Investment Partnerships Program (HOME). The overall objective of the review was to evaluate the susceptibility of HOME to unnecessary risk of waste, fraud or abuse, but the survey work primarily concentrated on overall program monitoring and the Community Housing Development Organization (CHDO) approval process. Some of the rationale for the review evolved from our prior audit of Nonprofit Participation in HUD Single Family Programs. We were concerned that nonprofit organizations precluded from participation in Single Family programs nevertheless might be participating in HOME. Whereas HUD has established procedures intended to limit participation in Single Family programs only to qualified, capable, experienced nonprofit organizations and HUD actually approves (or disapproves) the Single Family nonprofits, CHDO nonprofits initially need not have comparable experience or qualifications and CHDOs are approved by Participating Jurisdictions (PJs), not by HUD. We were also concerned that problems we found with nonprofits participating in the Single Family programs could extend to CHDO nonprofits participating in HOME. Specifically, we were concerned that (1) CHDO nonprofits could be controlled by profit motivated groups or individuals, (2) property resale profit margins could be excessive, and (3) construction or rehabilitation work might not meet minimum standards.

Our audit survey did identify some areas of apparent risk and several deviations from program requirements including: (1) monitoring weaknesses at both the HUD field office level and at the PJ level, (2) administrative weaknesses at both the PJ and sub-grantee or CHDO level, and (3) actual or apparent conflicts of interest. For the most part, our concerns that HOME might be experiencing problems with CHDOs analogous to those we found for Single Family nonprofits were alleviated as a result of the survey, and we do not believe additional internal audit coverage is warranted at this time.


Issue Date: July 31, 2002
Audit Report No.: 2002-KC-0002
File Size 274KB

Title: Nationwide Survey HUD's Office of Housing Section 232 Nursing Home Program

We have completed a survey of the Office of Housing's administration of HUD's Section 232 Nursing Home Program. We initiated the survey based on previous OIG audits of insured nursing homes that indentified numerous violations HUD's regulatory agreements. Our objective was to determine if HUD had adquate controls in place to identify and correct significant regulatory agreement violations. Although HUD's internal programs data did contain evidence of regulatory agreement violations, we found HUD does not have adquate controls in place to ensure all violations are identified. In addition, the nursing home annual audited financial statements submitted to the Real Estate Assessment Center's (REAC) Financial Assessment Subsystem (FASS) contain numerous examples of regulatory agreement violations; however, the system does not include audited financial statements for leased nursing homes. We believe that these significant control weaknesses have contributed to a high number of defaults and assignments of Section 232 projects.


Issue Date: July 12, 2002
Audit Report No.: 2002-AO-0001
File Size 978KB

Title: the Grants Management Center’s Operations

The Office of Public and Indian Housing created the Grants Management Center (GMC) to streamline and increase the efficiency of the administrative functions pertaining to it's categorical and formula grant programs. In FY 2000 and 2001, GMC processed grant awards for categorical programs totaling approximately $1.2 billion and formula programs for $12.3 billion. These grants included the categorical grants of the Housing Choice Voucher program and the Resident Opportunities and Self Sufficiency Program (ROSS), as well as the formula grants for the Capital and Operating Funds.

Our audit of GMC’s FY 2000 and 2001 operations showed that staff did not comply with established procedures when rating and ranking ROSS Resident Services Delivery Models applications. This led to scores that were arithmetically incorrect and unsubstantiated by reviewers’ written comments. As a result, GMC provided the decision-makers a list of eligible applicants based on unsubstantiated scores.

While consolidation has streamlined grant-processing activities, GMC’s management did not establish baseline/benchmark information and quantifiable indicators that directly relate to its operations and regularly compare these indicators against performance goals. Consequently, GMC management could not demonstrate that grant administrative functions are carried out more efficiently.


Issue Date: July 11, 2002
Audit Report No.: 2002-DP-0001

Title: HUD Network Security Assessment (Report Not Available to Public)

We have completed a security assessment of HUD's networked systems. A network security assessment is an independent examination of the network architecture and environment using specialized tools to confirm compliance with established controls, policies, and operational procedures. The objective of our assessment was to determine whether security controls and practices provide adequate protection against unauthorized access to HUD's critical and sensitive systems. We concluded from our assessment that the Office of Information Technology has implemented controls to strengthen HUD's network security. However, there are a number of vulnerabilities in the configuration and control of network resources. Our report presents detailed results of our assessment and appropriate recommendations for corrective action that will improve HUD's overall security posture when applied consistently throughout its networked environment. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.


Issue Date: June 10, 2002
Audit Memorandum No.: 2002-PH-0002
File Size: 290KB

Title: Single Family Sales to Owner-Occupant Purchasers

Under the Single Family Real Estate Owned (REO) owner-occupant sale initiative, HUD established an initial 10-day bidding period only open to individuals who certify that they will occupy a property for 12 months and have not purchased a HUD property within 2 years. However, we found that 29 percent of the purchasers did not comply with these requirements. Specifically, we statistically estimate purchasers bought 41,547 single properties, valued at $2.9 billion, that did not comply with residency requirements. Further, 1,550 purchasers bought 1,851 properties, valued at $107.3 million, in violation of purchase frequency limitations. The abuses occurred because HUD management was not aware of the magnitude of the problem, the HOCs did not specifically monitor owner-occupant sales due to other priorities and limited resources, and HUD’s SAMS did not provide sufficient information to enable the HOCs and Management and Marketing (M&M) contractors to easily prescreen prospective buyers. These abuses likely prevented a number of prospective owner-occupants from acquiring homes, which undermined the initiative’s intent to increase home ownership.


Issue Date: May 31, 2002
Audit Memorandum No.: 2002-FW-0801
File Size: 130KB

Title: Referral of Annual Audited Financial Statements Completed by George Baugh III & Company

We performed a limited review concerning unreported noncompliance issues in annual audited financial statements completed by George Baugh III & Co. Our limited review showed only one of the allegations was valid: the firm did not disclose Sunlight Manor's late residual receipts deposit in the project's 2000 audited financial statements. Since our review of the allegations did not disclose significant instances of noncompliance by George Baugh III & Co., we will not perform a quality control review of the firm at this time. However, HUD should require the firm to correct the financial statements of the Sunlight Manor.


Issue Date: May 29, 2002
Audit Memorandum No.: 2002-KC-0801
File Size: 171KB

Title: Region 7 Officer/Teacher Next Door Occupancy Violations

We completed occupancy evaluations of participants in the Officer/Teacher Next Door program in Region 7. Our objective was to determine whether program participants violated the 3-year occupancy requirements and to refer those violations for possible prosecution by Assistant United States Attorneys or administrative action by HUD. We found that all program participants were occupying the residence they had acquired under the Officer/Teacher Next Door program.


Issue Date: May 23, 2002
Audit Report No.: 2002-PH-0001
File Size: 932KB

Title: Multi-location Review of HUD's Utilization of the Public Housing Assessment System

We completed a multi-location review to evaluate HUD’s Utilization of the Public Housing Assessment System (PHAS). Altogether, we reviewed related operations at 10 Public and Indian Housing Hubs, Program and Community Service Centers, and completed housing unit inspections at 32 Public Housing Authorities.

Generally, we found HUD staff has been using the PHAS scoring results in monitoring its Authority portfolio and in assisting Authorities to improve failing or low scoring components of the PHAS score. However, the Conference Report 106-988, which restricted HUD from taking any adverse action against an Authority that receives a failing PHAS score, hindered HUD’s ability to fully implement the PHAS and thus limited its effectiveness in improving Authority performance, especially for the Authorities with the greatest need. Specifically, the Conference Report did not permit HUD to forward its worst performers (troubled) to one of two Troubled Agency Recovery Centers, where appropriate intervention strategies are to be developed and implemented to help troubled agencies perform at an acceptable level. Because of this restriction, Local HUD Offices have been using their limited resources to provide targeted technical assistance to these Authorities in addressing problem areas identified by the relevant PHAS indicators, using a less comprehensive approach than was provided for under the PHAS regulations. Meanwhile, the Troubled Agency Recovery Center’s role and functions in assisting troubled agencies has continued to erode with the centers now serving only 18 troubled and 29 non-troubled Authorities.

Further, not related to the restrictions imposed by the Conference Report, we found that HUD did not always designate Authorities with failing Management Operations scores as troubled and/or forward them to the Troubled Agency Recovery Centers in a timely manner as was required under HUD requirements and existing protocol; and was not providing assistance to Authorities that fail the Resident Service and Satisfaction indicator of PHAS.

Lastly, we found Authorities were either not correcting or not correcting in a timely manner Life Threatening Exigent Health and Safety (EH&S) violations that were identified from REAC’s physical inspections. Generally, the monitoring methods used by the Local HUD Offices to ensure Authorities corrected identified EH&S violations within 24 hours were inconsistent and not effective.

We made a number of recommendations to improve HUD’s use of PHAS in monitoring Public Housing Authorities with failing PHAS indicators.


Issue Date: May 16, 2002
Audit Memorandum No.: 2002-SE-0802
File Size: 114KB

Title: Survey Results on the Foreclosure Sale of the Rose Pointe Retirement Community by the Fort Worth Property Disposition Center, Fort Worth, Texas

We completed a survey of the foreclosure sale of the Rose Pointe Retirement Community by the Fort Worth Property Disposition Center in which we addressed allegations that the foreclosure sales price was too low. Our objective was to determine if the Fort Worth Property Disposition Center (Center) foreclosure sale of Rose Pointe Retirement Community was effective, efficient, and economical. The Center generally carried out the foreclosure sale of Rose Pointe Retirement Community effectively, efficiently, and economically. The Center considered the methods of disposal available, and determined the foreclosure sales amount in accordance with HUD requirements. Although the Center did not meet the goal of completing the foreclosure in 200 days, HUD has no statutory or regulatory requirements for the time to complete a foreclosure.


Issue Date: May 1, 2002
Audit Memorandum No.: 2002-DP-0801
File Size: 872KB

Title: Audit Memorandum on the Review of HUD's Multi-Year Information Technology (IT) Plan

This memorandum is in response to a congressional request that the HUD Office of Inspector General determine whether the HUD's Multi-Year IT Plan (FY01-FY03) addresses previously reported computer system weaknesses and whether the most critical weaknesses have been assigned sufficient funding priority. We found that management was well aware of the weaknesses that required corrective action. However, the Department sometimes initiated system projects before the prerequisite Enterprise Architecture Plan, business processes, and system functionality were fully identified. In addition, we found the Plan did not fully address OIG and GAO open report recommendations to correct long-standing material weaknesses in the computer systems supporting major HUD activities. The weaknesses inadequately addressed included the Department's financial systems, Section 8 rental subsidies, FHA business processes, and FHA funds control. Our comments on those recommended system projects that were excluded from the Plan are provided under the "Results of Review" section. Also, we have included comments on two large projects listed in the Plan that we believe can be deferred until later. Although HUD's submission is called a Multi-Year IT Plan, we believe that strategic resource planning should entail budget planning for the succeeding five-year period.


Issue Date: April 23, 2002
Audit Memorandum No.: 2002-SE-0801
File Size: 238KB

Title: Audit Memorandum on the Staffing Resources of the Real Estate Assessment Center's Tenant Assessment Subsystem, Seattle Technical Assistance Center, Seattle, Washington

We performed an audit of the Real Estate Assessment Center's Seattle Technical Assistance Center (Center) to assess the validity of a complaint alleging the Center staff does not have enough work to do, and the work performed by Analysts in the Center is not commensurate with their grade level. Our audit results found that the allegations were generally valid. The Real Estate Assessment Center (REAC) has not been able to provide an adequate number of suitable tasks and activities for the Center staff to carry out, the staff does not have enough work, and the work the Center Analysts perform is not commensurate with their grade level. Consequently, staff resources were underutilized, and opportunities for employee misconduct existed. Also, there are indications that similar problems exist at the Chicago Center. We are recommending that the Department develop and implement a plan to fully utilize the Center employees with meaningful work commensurate with their grade level, and determine if similar conditions exist at the Chicago Technical Assistance Center and take appropriate corrective action.


Issue Date: April 5, 2002
Audit Memorandum No.: 2002-AO-0801
File Size: 603KB

Title: Administration of Bridges over Troubled Waters Cooperative International Faith Community Information and Services Clearinghouse and Training Center, Howard University School of Divinity, Washington, DC

As a part of our plan to review the Office of Public and Indian Housing's award and administration of cooperative agreements, we reviewed Bridges Over Troubled Waters (BOTW), a 2-year ($500,000) cooperative agreement awarded to the International Faith Community Information and Services Clearinghouse and Training Center, Howard University School of Divinity (ISC). The main objective of our audit was to determine whether the Community Safety and Conservation Division (CSCD) complied with Departmental policies and procedures in administering BOTW. In order to achieve this objective, we also performed procedures to determine whether ISC conformed to the terms of the agreement and whether the BOTW program achieved its intended results. We found that: (1) the GTR did not adequately monitor ISC's compliance with the requirements of the agreement. As a result, performance reports showing vital information such as actual accomplishments were missing and were not used to approve drawdowns for ISC; (2) ISC did not adequately document its use of the funds or maintain appropriate supporting documentation; and (3) ISC's claim that BOTW achieved its goal was not supported by objective evidence that could be used to measure BOTW's success.


Issue Date: March 22, 2002
Audit Memorandum No.: 2002-DE-0801
File Size: 6956KB

Title: Alleged Violations of the Antideficiency Act and the HUD Reform Act by the Office of Multifamily Housing Assistance Restructuring (OMHAR)

We concluded that HUD did not violate the Antideficiency Act in awarding the Section 514 Technical Assistance Grants for fiscal years 1998 through 2001. However, HUD did not fully comply with the HUD Reform Act. While HUD officials competitively awarded the grants, as required by the HUD Reform Act, they did not publish the required notification in the Federal Register identifying the grantees and award amounts.

Weaknesses in HUD’s management controls resulted in errors (The General Accounting Office defines an error as an unintentional misstatement of financial information) in the award of the Section 514 Technical Assistance Grants. These errors, as well as management decisions that unnecessarily limited the period of funds availability, led to the appearance of potential violations of the Antideficiency Act. In fact, HUD did not obligate or expend more Section 514 Technical Assistance funds than were authorized by Statute and made available for fiscal years 1998 through 2001. However, as a result of misunderstandings between various HUD offices regarding the availability of funds over time, HUD did not comply with the Bona-fide Needs Statute, which provides that the balance of an appropriation or fund is available only for payment of expenses properly incurred during the period of availability.

The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) included language authorizing the Secretary to provide up to $10 million annually for technical assistance grants to tenant organizations. The MAHRA Statute does not include language specifically restricting the availability of the funds provided for technical assistance funds to one year. HUD’s Office of the Chief Financial Officer, through the apportionment and allotment process, designated Housing Certificate no year funds as the source of funds for the Section 514 Technical Assistance Grants, but limited the availability of these funds to one year. In effect, HUD funds that were available for use without time restrictions were, after HUD’s action, available for only one year. This situation created confusion among the various HUD Offices regarding the availability of funds by fiscal year for carryover and future use and contributed to the violation of the Bona-fide Needs Statute.

Factors that contributed to the appearance of violations of the Antideficiency Act included the following. In fiscal year 1998 HUD did not record or account for the commitment of Section 514 Technical Assistance Grant awards at the point of commitment or obligation in accordance with its accounting policy and the General Accounting Office’s Principles of Federal Appropriations Law. As a result, fiscal year 1998 funds allocated for Section 514 Technical Assistance were reapportioned through OMB at fiscal year end. Therefore, for budgetary purposes these fiscal year 1998 funds were no longer available for future expenditure even though HUD made a definite commitment for the future use of these funds. In fiscal year 2001 Section 514 Technical Assistance Grant agreements were modified prior to grantee acceptance to clarify that the initial funding obligated for the multiyear grant is less than the total grant amount for the three year period and is based on availability of funds at the time of award. Nevertheless, the Chief Financial Officer’s (CFO) Office of Budget took the position that the total award amount as shown on the grant agreement should have been obligated. This created confusion regarding the actual grant award obligation amounts for fiscal year 2001 and resulted in the CFO’s Director of Budget withdrawing OMHAR as a legally qualified allowance holder for any funds appropriated to HUD by Congress.

These processes clearly caused the misstatement of actual or valid obligations in fiscal years 1998 and 1999, and caused confusion regarding the amount of fiscal year 2001 obligations, but there was no violation of the Antideficiency Act. At the point of obligation when HUD made definite commitments to make future expenditures, Section 514 Technical Assistance funds were available to cover the obligations incurred.


Issue Date: March 13, 2002
Audit Memorandum No.: 2002-FO-0004
File Size: 348KB

Title: Independent Accountant's Report on the Department of Housing and Urban Development's Fiscal Year 2001 Detail Accounting Submission Report

In accordance with The Office of National Drug Control Policy (ONDCP)Reauthorization Act of 1998 and Office of National Drug Control Policy Circular: Annual Accounting of Drug Control Funds, dated December 17,1999, the accompanying report presents the results of our attestation review of the Department of Housing and Urban Development's Submission of Detailed Accounting of FY 2001 Drug Control Funds, dated January 17, 2002,and revised February 14, 2002. Our review focused on assessing the Detailed Accounting prepared by the Offices of Housing and Public and Indian Housing, prior year actual obligations, the accompanying disclosures, the financial systems and data supporting the drug methodologies, the estimation methods used, the completeness of the data, the application of the methodologies, and the assertions made regarding the obligation data presented in the Resource Summaries using the criteria indicated above. We were precluded by independence standards from reviewing the Detailed Accounting prepared by the Office Inspector General, and the Office of Inspector General has been given the authority to submit its Detailed Accounting report separately from HUD. Based on the review, nothing came to our attention that caused us to believe that the HUD's submission is not presented in all material respects with ONDCP's policy and circular.


Issue Date: March 12, 2002
Audit Memorandum No.: 2002-DE-0802
File Size: 164KB

Title: Rocky Mountain District Review of the Officer/Teacher Next Door Program

We completed our review of participants in the Officer/Teacher Next Door program. Our objective was to determine whether program participants violated the 3-year occupancy requirements and to refer those violations for possible prosecution by Assistant United States Attorneys or administrative action by HUD. We reviewed the occupancy status of homebuyers who participated in the program during the period of October 1998 to October 2001.


Issue Date: February 28, 2002
Audit Report No.: 2002-DE-0001
File Size: 1326KB

Title: Follow-up Nationwide Review of HUD's Loss Mitigation Program

We performed a nationwide follow-up audit of HUD's Single Family Loss Mitigation Program to evaluate whether the program is effectively and efficiently achieving HUD's goals for increased home retention and minimized costs to the insurance fund. We first audited this program in 1999. The follow-up audit was planned in the Office of Inspector General's fiscal year 2001 annual audit plan. Our audit work included reviews at six large and two midsize servicing mortgagees. We also reviewed the private contractor servicing partial claim notes and the Office of Housing, Single Family Division, which includes the National Servicing Center. The Department has exceeded its goals to increase the usage of loss mitigation strategies, thereby reducing losses to the FHA insurance fund with foreclosure avoidance. Although HUD has expanded the usage of the loss mitigation on FHA-insured loans, additional work is needed to improve the administration of the program. We identified four issues that are keeping the loss mitigation program from reaching its full potential and achieving HUD's goals to help borrowers retain homeownership while mitigating the economic impact to the FHA insurance fund.


Issue Date: February 27, 2002
Audit Report No.: 2002-FO-0003
File Size: 3814KB

Title: Audit of U.S. Department of Housing and Urban Development (HUD) Financial Statements for Fiscal Years 2001 and 2000

This report presents the results of OIG’s audit of the Department of Housing and Urban Development’s (HUD) financial statements for the fiscal years ended September 30, 2001 and 2000. In OIG’s opinion, the financial statements present fairly, in all material respects, HUD’s financial position as of September 30, 2001 and 2000, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended. The report identifies (a) 5 material weakness and 10 reportable conditions on internal controls and (b) 2 instances of non-compliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate them, and makes recommendations for corrective actions. During the course of the audit, OIG alsoidentified several matters that are not material to the financial statements and are being separately communicated to HUD management.


Issue Date: February 25, 2002
Audit Report No.: 2002-NY-0001
File Size: 467KB

Nationwide Audit - Asset Control Area Program Single Family Housing

We performed a nationwide audit of the Asset Control Area Program to assess the effectiveness of the Program in meeting its objective of expanded homeownership opportunities in revitalization areas. Specifically, our audit objectives were to determine whether: (1) eligible single-family properties are being made available to local governments and nonprofit entities, (2) homeownership opportunities are being expanded, (3) neighborhoods are being revitalized as a result of improvements to the housing stock, (4) HUD has established adequate management controls over the Asset Control Area Program, and (5) the Asset Control Area Program is an efficient use of HUD resources.


Issue Date: February 22, 2002
Audit Report No.: 2002-FO-0002
File Size: 3159KB

Title: Audit of the Federal Housing Administration’s Financial Statements for Fiscal Years 2001 and 2000

This report presents the results of KPMG LLP’s (KPMG) audit of the Federal Housing Administration’s (FHA) financial statements for the years ended September 30, 2001 and 2000. In KPMG’s opinion, the financial statements present fairly, in all material respects, FHA’s financial position as of September 30, 2001 and 2000, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended. The report identifies two material weakness and four reportable conditions on internal control, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. During the course of the audit, KPMG also identified several matters that are not material to the financial statements and are being separately communicated to FHA management.


Issue Date: February 20, 2002
Audit Report No.: 2002-FO-0001