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Fiscal Year 2011

Issue Date: March 2, 2011
Audit Memorandum No.: 2011-CF-1801
File Size: 1.56MB

Title: An Underwriting Review of 15 FHA Lenders Demonstrated That HUD Missed Critical Opportunities To Recover Losses to the FHA Insurance Fund

In January 2010, the U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) began Operation Watchdog, an initiative to review the underwriting of 15 Federal Housing Administration (FHA) direct endorsement lenders having default and claim rates indicating lender performance problems. The FHA Commissioner had expressed concern regarding the increasing default and claim rates against the FHA insurance fund for failed loans, prompting this initiative.

Our review objective was to determine whether each lender underwrote its respective loans in accordance with FHA requirements. To accomplish the objective, we reviewed between 12 and 20 FHA loans underwritten by each of the 15 lenders that resulted in claims against the FHA insurance fund. We reported our results in individual memorandums to HUD. This summary memorandum compiles the results of the Operation Watchdog initiative and expresses OIG's concerns about systemic problems with the underwriting of FHA insured loans and the resulting costs to the FHA insurance fund for loans that should not have been insured.

We recommended in each of the 15 issued memorandums that HUD pursue appropriate remedies under the Program Fraud Civil Remedies Act against each lender and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of the 140 questioned loans. These loans resulted in actual losses or were expected to result in losses to the FHA insurance fund of more than $11 million. Further, the lenders' improper certifications could result in affirmative civil enforcement actions of more than $23 million. We also recommended that HUD take appropriate administrative action against each lender and/or its principals.

Based on the overall results of the Operation Watchdog initiative and the systemic problems identified, we made an additional recommendation to HUD that it develop and implement procedures to review a statistical or risk-based selection of loans for which FHA paid a claim on the mortgage insurance within the first two years of endorsement, to verify that the loans met FHA requirements and were qualified for insurance. We further recommended that these procedures include a requirement for HUD to seek appropriate civil and administrative remedies to recover losses incurred on loans not qualified for FHA insurance.

Issue Date: February 10, 2011
Audit Report No.: 2011-DP-0005

Title: Although HUD Continued to Make Improvements to Its Entity Wide Security Program, Challenges Remained in Its Efforts to Comply with Federal Information Security Requirements (Report Not Available to the Public)

We have completed an audit of the U.S. Department of Housing and Urban Development's (HUD) information security program.  We evaluated whether HUD's Office of the Chief Information Officer (OCIO) had developed security policies, implemented procedures, and continuously monitored its entitywide information system security program.  We performed this audit because it is a required component of our fiscal year 2010 consolidated financial statements audit and our annual evaluation of HUD's information system security program in accordance with  the Federal Information Security Management Act of 2002 (FISMA). The OIG has determined that the contents of this audit report would not be appropriate for public disclosure and has therefore limited its distribution to selected officials.

Issue Date: February 1, 2011
Audit Report No.: 2011-NY-0001
File Size: 2MB

Title: HUD's Oversight of Public Housing Authorities' Energy Performance Contracting in New York and New Jersey Had Not been Sufficient, but HUD Had Taken Appropriate Steps to Improve Controls

We conducted an audit the U.S. Department of Housing and Urban Development's (HUD) oversight of public housing authorities' (authority) energy conservation procedures through energy performance contracting (EPC) in the states of New York and New Jersey (Region 2). We initiated the audit as part of the activities in our 2010 annual plan. The audit objectives were to determine whether HUD had adequate controls to ensure that (1) the costs of EPC had been properly repaid from the savings from energy conservation and/or add-on subsidy incentives, (2) utility cost savings on measurement and verification (M&V) reports had been reported in a timely manner, (3) utility cost savings were accurately calculated and energy service companies guaranteed utility cost savings were achieved, and (4) its EPC inventory data were accurate and complete.

HUD's Office of Public and Indian Housing (PIH) staff did not always adequately monitor the authorities with EPC or verify reported information regarding energy cost savings. Specifically, HUD did not have adequate controls in place to ensure that (1) the costs of EPC had been properly repaid from the savings from energy conservation and/or add-on subsidy incentives, (2) utility cost savings had been reported on M&V reports in a timely manner, (3) utility savings had been accurately calculated and guaranteed utility cost savings were achieved, and (4) its EPC inventory data were accurate and complete. We attribute this condition to a lack of adequate controls and training of staff to ensure compliance with the published review procedures and regulations. Therefore, HUD may not have assurance that utility cost savings as guaranteed by the energy service companies was achieved. HUD's PIH headquarters officials were aware of the control weaknesses and had taken corrective actions including making organizational changes to provide additional training and technical support to field office staff and participating authorities.

We recommended that the Deputy Assistant Secretary for Field Operations (1) establish and implement controls to ensure that the costs of EPC have been properly repaid from the savings from energy conservation and/or add-on subsidy incentives, (2) establish and implement controls to ensure that M&V reports are submitted in a timely manner and that data are verified for accuracy, (3) establish and implement controls to verify that actual energy cost savings achieved are equal to or greater than the energy service companies' guaranteed energy savings and/or the add-on subsidy incentive amount, (4) provide mandatory training to the appropriate headquarters and field office staff and participating authorities to ensure that they comply with the current and upcoming regulations related to EPC, and (5) establish and implement necessary control procedures to ensure that the EPC database is complete and accurate.

Issue Date: January 25, 2011
Audit Report No.: 2011-PH-0001
File Size: 139KB

Title: HUD Hired Employees in Accordance With Office of Personnel Management Guidelines for Streamlining the Federal Hiring Process

We audited the U.S. Department of Housing and Urban Development's (HUD) process for hiring employees in accordance with Office of Personnel Management (OPM) guidelines. The audit was initiated due to concerns about whether HUD addressed the staffing needs of its Homeownership Centers in a timely manner to address significant increases in single family mortgage workload. Our audit objective was to determine whether HUD effectively hired employees in accordance with OPM guidelines for streamlining the Federal hiring process. We found that HUD generally hired employees in accordance with OPM's 80-day timeframe goal for the Federal hiring cycle. HUD's Office of the Chief Human Capital Officer made improvements that reduced its average cycle time for hiring employees by approximately 37 percent between fiscal years 2008 and 2010; and, met the staffing needs of HUD's 4 Homeownership Centers within the confines of authorized staffing levels. The report contains no recommendations.

Issue Date: January 21, 2011
Audit Report No.: 2011-LA-0001
File Size: 856KB

Title: Did Not Provide Adequate Oversight and Guidance During the Technical Review of the Retreat at Santa Rita Springs

We conducted the audit of the Retreat at Santa Rita Springs (community), a Federal Housing Administration-insured multifamily property under the Section 231 of the National Housing Act, in response to a congressional request from Representative Gabrielle Giffords of the 8th Congressional District of Arizona. In November 2009, the owners of the community defaulted on its $29.9 million U.S. Department of Housing and Urban Development (HUD)-insured loan less than one month after final endorsement.

The community experienced huge operating shortfalls and eventually defaulted on the loan. The financial default was due to HUD's inadequate technical review and monitoring, the lender's failure to exercise due diligence in underwriting the loan, and the owners' lack of financial commitment and guidance to its management agent. As a result, the community's loan note was sold to an outside party for approximately $9 million, or more than a $20 million loss to HUD.

We recommend that the Director of HUD's Office of Multifamily Housing Development update the MAP Guide to include rules and requirements for processing Section 231 loans and discontinue processing these types of loans until the MAP Guide is updated. We also recommend that the Director of HUD's Region IX San Francisco Office of Multifamily (1) ensure that all conditions for underwriting are met in processing Section 231 multifamily properties and that there are clear roles, responsibilities and communication among the HUD offices when conducting reviews to minimize potential problems such as those mentioned in this report and (2) improve the regional field office's property management and performance monitoring of Section 231 properties by beginning monitoring immediately upon occupancy to minimize potential financial, operational, and managerial problems related to the properties under the program.

Issue Date: January 14, 2011
Audit Report No.: 2011-DP-0004

Title: Fiscal Year 2010 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 2010 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: December 7, 2010
Audit Report No.:2011-FO-0004
File Size: 694KB

Title: Annual Evaluation of HUD's Compliance With Presidential Executive Order 13520, Reducing Improper Payments

We conducted an annual limited scope review of the U.S. Department of Housing and Urban Development's (HUD) compliance with Presidential Executive Order (EO) 13520, Reducing Improper Payments. HUD was in general compliance with EO 13520 annual reporting requirements. We concluded that HUD's ongoing efforts in mitigating the risks of improper payments in the rental housing assistance programs were progressing in a positive direction. However, we noted some areas in which HUD could make enhancements related to disclosure and procedural issues. We also noted specific areas for improvements which would strengthen HUD's improper payment reduction strategies.

Issue Date: December 3, 2010
Audit Report No.: 2011-DP-0003
File Size: 648KB

Title: HUD Did Not Fully Comply With the Requirements of OMB Circular A-127

We audited the U.S. Department of Housing and Urban Development's ability to comply with the requirements of Office of Management and Budget (OMB) Circular A-127, which was revised in January 2009 and became effective on October 1, 2009. We conducted the audit as a component of the audit of HUD's consolidated financial statements for fiscal year 2010 under the Chief Financial Officer's Act of 1990. We found that HUD did not fully comply with the requirements of OMB Circular A-127. Specifically, HUD had not (1) initiated plans to review financial management systems for compliance with computer security and internal control guidelines; and (2) accurately identified HUD's financial management systems within its financial system inventory listing. Additionally, although progress has been made, we continue to have concerns regarding HUD's integrated core financial system. We recommended that the Office of the Chief Financial Officer take appropriate steps to move into compliance with the requirements of OMB Circular A-127.

Issue Date: November 19, 2010
Audit Report No.: 2011-DP-0002
File Size: 564.70KB

Title: Better Planning for the Unisys Rehost Project Was Needed

We audited the U.S. Department of Housing and Urban Development's (HUD) efforts to rehost important financial applications from the Unisys mainframe computing platform to the UNIX open system platform. This audit was initiated based upon work performed during our fiscal year 2009 review of information system security controls in support of the annual financial statement audit. During that audit, we identified weaknesses in the planning of the rehost project.

Although HUD had processes and procedures in place for managing and monitoring information technology system development projects, improvements were needed. Specifically, better upfront planning was needed for the Unisys rehost project.

We recommended that the Office of the Chief Information Officer ensure that HUD's system development methodology is used in all information technology development projects. We also recommended that the Office of the Chief Procurement Officer verify contractor capabilities prior to the initiation of information technology development projects.

Issue Date: November 16, 2010
Audit Report No.: 2011-CH-0001
File Size: 95KB

Title: HUD Can Improve Its Oversight of Public Housing Agencies' Section 8 Project-Based Voucher Programs

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's oversight of public housing agencies' Section 8 Project-Based Voucher programs (program). The audit was part of the activities in our fiscal year 2010 annual audit plan and our strategic plan to help HUD resolve its major management challenges. Our objective was to determine whether HUD had adequate oversight of public housing agencies' programs to ensure that program funds were used in accordance with HUD's requirements.

HUD's Office of Public and Indian Housing lacked complete and accurate information to adequately monitor its program.

HUD's Office of Public and Indian Housing also did not adequately monitor the addition of new projects to its program. It did not implement adequate procedures and controls to ensure that its program was operated according to its and the public housing agencies' requirements.

We informed HUD's Deputy Assistant Secretary for Field Operations of a minor deficiency through a memorandum, dated November 16, 2010.

We recommend that HUD's Deputy Assistant Secretary for Field Operations provide additional guidance to public housing agencies to ensure accurate reporting by agencies of their information in HUD's Public and Indian Housing Information Center, the Voucher Management System, and the agencies' plans. The reporting requirements should include requiring agencies to certify to the accuracy of their information reported to HUD. In addition, the Deputy Assistant Secretary should (1) issue specific guidance to its field offices so they can ensure that the program's reporting requirements are adequately monitored and (2) implement adequate monitoring procedures and controls for the oversight of its program to ensure that public housing agencies select and adequately document only eligible projects and use program funds in accordance with program requirements.

Issue Date: November 16, 2010
Audit Report No.: 2011-FO-0003
File Size: 1MB

Title: Additional Details to Supplement Our Report on HUD's Fiscal Years 2010 and 2009 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 20010 and 2009 Financial Statements, which is included in HUD's Fiscal Year 2010 Agency Financial 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) nine 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 9, 2010
Audit Report No.: 2011-HA-0001
File Size: 1MB

Title: HUD Did Not Adequately Plan the Procurement of the Management and Marketing Contracts

We performed an audit of the selection of management and marketing contractors for single-family properties owned by the U.S. Department of Housing and Urban Development (HUD). This audit was initiated based on a complaint to our hotline alleging possible mismanagement, political influence, and violations of law in the procurement strategy used to select firms for the third generation management and marketing (M&M III) contracts. Our objective was to determine whether the allegations of mismanagement, political influence, and possible violations of law were valid.

We found the allegation of mismanagement credible; however, we did not find support to substantiate the allegations of political influence or violations of law. The Office of Single Family Asset Management and the Office of the Chief Procurement Officer did not have adequate controls to ensure that the M&M III contracts were awarded in a timely and efficient manner. Specifically, key stakeholders were not included in the initial planning for these contracts, and acquisition plans were not developed in a timely manner. As a result, the M&M III contracts were delayed for nearly a year, and bridge contracts with an estimated cost of more than $275 million had to be awarded to the existing M&M II contractors to avoid a lapse in the management and marketing services.

We recommend that the Deputy Assistant Secretary for Single Family Housing develop controls to award contracts in a timely manner, thus avoiding unnecessary expenditures for extending contracts. We also recommend that the Deputy Assistant Secretary (1) follow the procurement office's established acquisition planning requirements and procurement acquisition lead time (PALT)[1] guidance, (2) submit timely and complete performance work statements on all future contracts, and (3) use in-house resources when forming the integrated program team for all significant acquisitions to avoid unnecessary expenditures such as those paid to a contractor for writing performance work statements.

In addition, we recommend that HUD's Chief Procurement Officer (1) assign significant acquisitions to offices that have sufficient staff and expertise to avoid unnecessary expenditures such as those paid to an administrative support contractor, and (2) ensure that the PALT schedule is followed and require written justification when significant delays are encountered.

Issue Date: November 5, 2010
Audit Report No.: 2011-FO-0002
File Size: 752KB

Title: Audit of the Federal Housing Admininstration's Financial Statements for Fiscal Years 2010 and 2009

This report presents the results Clifton Gunderson's (CG) audit of the fiscal year 2010 and 2009 financial statements of the Federal Housing Administration (FHA). The report on FHA's financial statements, dated November 3, 2010 includes an unqualified opinion on FHA's financial statements. The report contains two significant deficiencies in FHA's internal controls and one reportable instance of noncompliance with laws and regulations. The report contains eight new recommendations. Additionally, it discusses the issues/conditions in detail, provides an assessment of management's responses to the report, and makes recommendations for corrective actions. CG also noted other matters involving internal control and its operation that are not material to the financial statements and are being communicated separately to FHA's management.

Title: Audit of Government National Mortgage Association's (Ginnie Mae) Financial Statements for Fiscal Years 2010 and 2009

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, 2010 and 2009. In CBTC's opinion, the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 2010 and September 30, 2009 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.

CBTC's report on internal control did not identify deficiencies internal control over financial reporting that might be considered significant deficiencies or material weaknesses. However, within 60 days of this report, CBTC expects to issue a separate letter to management dated November 5, 2010 regarding other less significant matters that came to its attention during the audit.

Issue Date: November 2, 2010
Audit Report No.: 2011-BO-0001
File Size: 100KB

Title: The Cambridge, MA, Housing Authority Generally Administered Its Public Housing Capital Fund Stimulus (Formula) Recovery Act Funded Grant in Accordance With Applicable Requirement

We audited the Cambridge Housing Authority (Authority) because it obligated a majority of its $4.4 million Public Housing Capital Fund Stimulus (Formula) Recovery Act Funded grant (grant) received under the American Recovery and Reinvestment Act of 2009 just before the required obligation deadline. Our objective was to determine whether the Authority obligated and disbursed capital funds received under the Recovery Act according to the requirements of the act and applicable U.S. Department of Housing and Urban Development (HUD) rules and regulations.

The Authority generally administered its grant according to Recovery Act requirements by obligating and disbursing its capital funds according to applicable HUD rules and regulations.

This report contains no recommendations, and no further action is necessary.

Issue Date: October 6, 2010
Audit Report No: 2011-DP-0001

Title: HUD Did Not Properly Manage HITS Contracts and Contractors To Fully Comply With Contract Requirements and Acquisition Regulations (Report Not Available to Public)

We audited the U.S. Department of Housing and Urban Development's (HUD) management and contractors' performance of the HUD information technology services (HITS) contracts. We reviewed (1) the services provided by the contractors based on HUD's core functional business needs, (2) the levels of contractor performance as outlined in the contracts, (3) HUD's management of the HITS contracts, and (4) compliance with applicable Federal requirements. 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.

Fiscal Year 2010

Issue Date: September 30, 2010
Audit Report No.: 2010-DP-0004

Title: Security Weaknesses on HUD's Network Devices (Report Not Available to Public)

We audited the U.S. Department of Housing and Urban Development's (HUD) network devices to determine whether the security configurations implemented on the devices provided adequate controls to prevent abuse or unauthorized access to HUD's information resources. We evaluated security measures that protect HUD information by scanning identified network devices and identifying vulnerabilities and suspect configurations that place sensitive information at risk. We conducted the audit as a component of the testing of general and technical controls for information systems in connection with (1) an 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 would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.

Issue Date: September 30, 2010
Audit Report No.: 2010-HA-0003
File Size: 348KB

Title: HUD Needs To Improve Controls Over Its Administration of Completed and Expired Contracts

We audited the Office of the Chief Procurement Officer's (procurement office) procedures for administering completed and expired contracts in compliance with applicable regulations. Our objective was to determine whether the procurement office performed contract closeout procedures on completed and expired contracts in a timely manner. We expanded our objective to determine whether the contract files were complete and properly maintained.

We determined that the procurement office did not close contracts in a timely manner. Specifically, the procurement office did not close out more than 1,800 contract actions for which the performance period had expired or the work had been completed more than 6 months before our review. Of these actions, 35 contracts had outstanding balances totaling $15.2 million that should have been deobligated. Also, the procurement office did not maintain accountability over contract files. As a result, the procurement office could not locate 15 of the 94 files in our sample, and 11 files were incomplete because required documents were missing.

We recommend that the procurement office deobligate the $15.2 million in outstanding balances remaining on the contracts included in our review, increase the priority for closing expired and completed contracts and appropriately deobligate outstanding balances to avoid future backlogs, and establish adequate administrative controls to properly maintain and safeguard contract files.

Issue Date: September 30, 2010
Audit Report No.: 2010-FW-0004
File Size: 2MB

Title: HUD's Oversight of the Hurricane Ike Disaster Housing Assistance Program in Texas Needed Improvement

We audited the Disaster Housing Assistance Program (DHAP)-Ike as part of our ongoing commitment to the U. S. Department of Housing and Urban Development (HUD) to implement oversight of Disaster Recovery funds to prevent fraud, waste, and abuse. HUD used local public housing agencies (housing agencies) to administer DHAP-Ike rental assistance and provide case management services to families affected by Hurricanes Ike and Gustav. Our audit objective was to determine whether HUD ensured that four housing agencies in Texas correctly calculated and paid DHAP-Ike payments to eligible tenants and for eligible units in accordance with program requirements.

HUD did not ensure that the four housing agencies in Texas that received the most assistance followed DHAP-Ike requirements for 51 (75 percent) of the 68 active files reviewed. Further, for 27 (40 percent) of the 68 files reviewed, the housing agencies' errors affected the payment or tenant/unit eligibility. These errors occurred because HUD relied on its contractors, did not provide standardized file guidance to the housing agencies, and only performed limited monitoring at the housing agencies. Projecting the results of the statistical sample showed that of the 9,817 families assisted by the four housing agencies, at least 6,374 (65 percent) of the families likely had an error in their file and at least 2,920 (30 percent) of the families' payments or eligibility was affected.

We recommend HUD perform additional monitoring of its contractor, provide standardized guidance to the housing agencies, and perform onsite monitoring at the housing agencies. We also recommend that HUD require the four housing agencies to correct the file documentation errors in the 51 identified files and repay or support the 27 questioned payments totaling $48,982.

Issue Date: September 29, 2010
Audit Report No.: 2010-HA-0002
File Size: 619KB

Title: HUD's Office of Healthy Homes and Lead Hazard Control Grant Selection Procedures Used for the Lead Hazard Reduction Demonstration Program

We performed an audit of HUD's Office of Healthy Homes and Lead Hazard Control (OHHLHC) grant program for Lead Hazard Reduction Demonstration (LHRD). Our audit was initiated based on a complaint to the hotline alleging that the managers of OHHLHC changed the scores assigned by the application review panel to award grants to applicants that were not ranked high enough to receive funding under the 2009 NOFA. Our objective was to determine whether (1) OHHLHC awarded grants in accordance with the selection criteria specified in the fiscal year 2009 notice and (2) the allegation in the complaint had merit. We found no intent to change scores in order to fund certain applicants thus the allegation could not be substantiated. The scores were changed to correct errors in the waiver matching requirement percentage during the threshold review. We also found five LHRD applicants that incorrectly receive two bonus points because they were not in designated empowerment zones.

We recommend that HUD's OHHLHC Director ensure that (1) the Programs Division Director verifies the accuracy of the threshold reviews before sending the applications to the application review panel, (2) the quality control reviews are completed and documented before submitting the application review panel report for approval, and (3) the review panel members do not perform quality control reviews of applications that they reviewed. We also recommend that the OHHLHC Programs Division Director adhere to the new procedures requiring the reviewers to verify that applicants are in designated empowerment zone.

Issue Date: September 28, 2010
Audit Report No.: 2010-KC-0003
File Size: 206KB

Title: HUD's Written Policies and Procedures for Loan Indemnifications Were Generally Adequate, But Did Not Include Procedures for Pursuing Signed Indemnification Agreements From Lenders

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Lender Activities and Program Compliance, Quality Assurance Division. We did this review because during a prior audit, we saw instances in which indemnification agreements were not obtained from lenders under certain circumstances. Our objective was to determine whether the U.S. Department of Housing and Urban Development (HUD) had adequate controls to track, obtain, and record indemnification agreements from lenders for materially deficient loans.

HUD's Quality Assurance Division had written policies and procedures for determining when an indemnification agreement was appropriate and how to process a signed agreement. However, it did not have written policies and procedures for pursuing the signed indemnification agreement from lenders.

We recommended the Quality Assurance Division develop and implement effective policies and procedures to ensure that its employees consistently pursue signed indemnification agreements.

Issue Date: September 17, 2010
Audit Report No. 2010-DP-0003
File Size: 181.25KB

Title: Review of the Effectiveness of HUD's Data Quality Review Processes for the American Recovery and Reinvestment Act of 2009

We audited HUD's internal control structure for ensuring that American Recovery and Reinvestment Act of 2009 (Recovery Act) recipient data are reported completely, accurately, and in a timely manner. We also determined whether material omissions and significant errors were identified correctly. We conducted this audit as part of a joint effort among the Inspector General community under oversight of the Recovery Accountability and Transparency Board.

HUD established the Recovery Implementation Team (Recovery Team), within the Office of Strategic Planning and Management, to monitor and maintain Recovery Act funding and reporting. The Recovery Team's accomplishments as of the March 31, 2010, reporting period are as follows: (1) Developed policies and procedures for validating recipient reporting, (2) Completed several rounds of validation checks of recipient data, (3) Successfully assisted approximately 99 percent of the prime recipients (4,849 of 4,911) to meet report requirements, and (4) Met with the Office of Inspector General (OIG) on a monthly basis to discuss Recovery Act activities.

The overall quality assurance process completed by the Recovery Team has proven to be successful with HUD's high recipient reporting rate. However, we determined that the Recovery Team should provide additional and updated guidance to HUD program offices pertaining to enforcement actions for non reporting. In accordance with Office of Management and Budget Memorandum 10-17, Federal agencies have additional requirements to ensure that recipients report in a timely manner. The Recovery Team needs to ensure that program offices have implemented this new memorandum and request updated enforcement action procedures from the program offices.

Issue Date: September 15, 2010
Audit Report No.: 2010-LA-0002
File Size: 4.85MB

Title: HUD's Office of Single Family Housing's Management Controls Over Its Automated Underwriting Process (Redacted Report)

We completed an audit of U.S. Department of Housing and Urban Development (HUD) Single Family Program Development Office's automated underwriting process. We assessed whether HUD had in place appropriate and effective management controls over its automated underwriting process. The audit was performed as part of the HUD Office of Inspector General's (OIG) fiscal year 2010 annual audit plan and supported the audit plan objective to contribute to improving the integrity of the single-family insurance program. The OIG has determined that the full contents of this report would not be appropriate for public disclosure and is releasing this redacted version to the public.

Issue Date: September 13, 2010
Audit Memorandum No.: 2010-NY-0801
File Size: 107.19KB

Title: Corrective Action Verification, Utica Municipal Housing Authority, Low-Rent Housing Program, Utica, New York

We completed a corrective action verification review of the audit recommendations for findings 1 and 2 of Audit Report Number 2006-NY-1005, issued February 21, 2006 pertaining to the general operations of the Utica Municipal Housing Authority, Utica, New York (Authority). 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 corrective action verification review found that although the Authority has effectively implemented the recommendations, the appropriate action was not taken for all of the recommendations in the audit report on the general operations of the Authority. It was determined that the Authority had certified to the Buffalo Office that it had no unrestricted nonfederal funds available for the repayment of disallowed costs. The Authority also complied with the requirements of REAC's Accounting Issue No.7, concerning disallowed costs, having recorded $618,446 as an "Inter-program Due From" account for the disallowed costs included in Finding 1 and 2 of the Audit Report. These amounts will remain on the Authority's book until reimbursed with nonfederal funds or written documentation has been received, in a future period, relieving the Authority of its obligation of reimbursement of these monies. Specifically for recommendations 1B, 2C, and 2E, the Buffalo Office followed through with all existing protocols and guidance at the time the audit was conducted. However, based on the implementation of asset management and the existence of Central Office Cost Center nonfederal funds that were not available when these recommendations were initially closed out, we have determined that these recommendations should be reopened in HUD's Audit Resolution and Corrective Action Tracking System (ARCATS) to reflect future reimbursement with nonfederal funds. The Authority established a payable account due to HUD. However, since this account was established and cannot be written-off until the Authority provides evidence to support that their attempts to earn nonfederal funds were unsuccessful; it is necessary for HUD to keep the recommendation open as a receivable in ARCATS until the funds are repaid, or the payable account at the Authority is properly written off.

We recommend that HUD reopen recommendations 1B, 2C, and 2E in HUD's Audit Resolution and Corrective Action Tracking System (ARCATS) to reflect future reimbursement with nonfederal funds.

Issue Date: August 25, 2010
Audit Report No.: 2010-FW-0003
File Size: 666KB

Title: HUD Was Not Tracking Almost 13,000 Defaulted HECM Loans With Maximum Claim Amounts of Potentially More Than $2.5 Billion

We performed an internal audit of the U. S. Department of Housing and Urban Development's (HUD) Home Equity Conversion Mortgage (HECM) program because we found that an increasing number of borrowers had not paid taxes or homeowners insurance premiums as required, thus placing the loan in default. Also, we noted that HUD had granted foreclosure deferrals routinely on defaulted loans, but it had no formal procedures. Our audit objective was to determine whether HUD's adoption and reversal of an informal foreclosure deferral policy for HECM loans that defaulted due to nonpayment of taxes and insurance had a negative effect on the HECM program.

We found that HUD's informal foreclosure deferral policy and its reversal had a negative effect on the universe of HECM loans and loan servicers (servicers). After cancelling its informal policy, HUD did not issue guidance to servicers advising them of what actions to take regarding defaulted loans. Thus, servicers continued to service the loans and paid the taxes and insurance for the borrowers, but they did not notify HUD. As a result, four servicers contacted were holding almost 13,000 defaulted loans with a maximum claim amount of more than $2.5 billion, and two of the four servicers said they were awaiting HUD guidance on how to handle them. Further, the servicers had paid taxes and insurance premiums totaling more than $35 million for these 12,958 borrowers and, if HUD does not take action, additional payments will occur in the next 12 months.

HUD also could not identify the deferred or defaulted loans in the Single Family Data Warehouse and did not track the number of borrowers who were unable to pay their property taxes or insurance premiums. As a result, HUD did not know how many loans had principal amounts increasing because the servicer had added payments for taxes and insurance to the loan amount. Since unreported defaulted loans were only obtained from 4 of a total of 16 HECM servicers nationwide, more defaulted loans may exist. Further, as HUD could not track these loans, it did not know the potential claim amount. In the event of foreclosure of the 7,673 loans for which HUD was aware and 12,958 loans of which it was not aware, HUD could lose an estimated $1.4 billion upon sale of the properties.

We recommend that HUD's Deputy Assistant Secretary for Single Family Housing (1) discontinue the practice of deferring foreclosure due to nonpayment of taxes and insurance which will result in an estimated $35 million in funds being put to better use; (2) issue formal guidance to servicers regarding loans currently in default due to nonpayment of property taxes and insurance, including requiring the servicers to foreclose if the borrowers do not pay the delinquent taxes and insurance; (3) develop and implement a plan to minimize the risk of future defaults due to nonpayment of taxes and insurance; and (4) develop a tracking and reporting system, including making modifications to the Single Family Data Warehouse, to ensure that HUD can track the defaulted loans and the amounts paid for the borrowers.

Issue Date: August 17, 2010
Audit Report No.: 2010-FO-0004
File Size: 599KB

Title: Review of HUD's Property and Equipment

We performed an audit of the U.S. Department of Housing and Urban Development's (HUD) property and equipment. We performed this audit as a result of recurring findings relating to HUD's property and equipment reported in the fiscal years 2004 through 2008 management letters. Our objective was to determine whether HUD properly recorded and tracked the acquisition and disposal of its capitalized and other accountable property and equipment.

We found that not all purchases of accountable equipment were recorded in HUD's inventory management system, the Facilities Integrated Resource Management System (FIRMS). Additionally, HUD lacked sufficient purchase documentation for accountable equipment in FIRMS. We also noted deficiencies in FIRMS and that HUD's inventory policies and procedures need to be updated. We found that HUD was properly recording and tracking its capitalized equipment.

We recommend that the Deputy Assistant Secretary of the Office of the Chief Human Capital Officer (1) work with the Office of the Chief Information Officer to develop and implement a system which would allow OFMS to identify when equipment is purchased; (2) update and reissue the standard operating procedures for reporting the purchases of equipment and implement a set of standard operating procedures for users of purchase cards; (3) coordinate with the Office of the Chief Financial Officer, Office of the Chief Information Officer, and Office of the Chief Procurement Officer to develop and implement system interfaces; (4) develop and implement a process that can distinguish between capitalized and expensed equipment in FIRMS.

We further recommend that the Chief Procurement Officer and Chief Information Officer work with OFMS to ensure that their employees are properly trained in the procedures for identifying which equipment needs to be reported and are aware of the requirement to report the purchase and in some instances, the lease of equipment to OFMS.

Issue Date: August 9, 2010
Audit Report No.: 2010-BO-0003
File Size:142KB

Title: Public Housing Authorities Generally Paid Voucher Subsidy Payments to Subsidized Multifamily Properties Correctly

We conducted a national audit of whether public housing authorities overpaid voucher subsidies to multifamily property owners in specific types of subsidized properties. If a public housing authority pays a property owner a subsidized rent at one of these types of properties, the voucher rent should be set at the level of the rent payments to the subsidized multifamily properties, which generally is lower than the public housing authorities' payment standard for vouchers. This national audit follows our audit of a subsidized multifamily property in Maine, in which we found that housing authorities caused the overpayments by inappropriately using the fair market rents instead of the lower rents subsidized under Section 236 of the Housing Act of 1959.

Public housing authorities generally did not overpay subsidies to subsidized multifamily properties. We compared addresses of 1.93 million housing choice vouchers with addresses of 17,684 multifamily properties with Federal loans. We identified 193 addresses for which a voucher payment was made to the owner of a subsidized multifamily property. We also found that 148 of these vouchers were reported correctly. The remaining 45 vouchers were incorrectly reported, and these errors will be addressed in separate memorandums to U.S. Department of Housing and Urban Development (HUD) field offices. For these 45 vouchers, we did not find that the vouchers had common property owners, common public housing authorities, or common management agents.

We recommend that HUD update the Housing Choice Voucher Guidebook 7420.10G to include a section on the relationship between properties with Federal loans and the public housing authorities' rental payments to those properties' owners.

Issue Date: August 6, 2010
Audit Report No.: 2010-KC-0002
File Size:551KB

Title: FHA Delayed Sending Violation Notices to Lenders That Did Not Meet Recertification Requirements

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Federal Housing Administration's (FHA) Title II single-family lender renewal process. The objective of the audit was to determine whether FHA ensured that lenders submitted recertification requirements in a timely manner. We found that FHA did not ensure that lenders submitted recertification forms, annual fees, and/or audited financial statements in a timely manner. The Lender Approval and Recertification Division (Division) did not promptly issue notices of violation to lenders that did not submit required annual recertification documentation and/or fees when due.

We recommend that the Office of Lender Activities and Program Compliance require the Division to revise the recertification process to discontinue issuing notices of deficiency and issue notices of violation promptly for all lenders that do not submit or attempt to submit one or more of the required items by the due date.

Issue Date: August 6, 2010
Audit Memorandum No.: 2010-HA-0801
File Size: 144KB

Title: HUD's Guidance on Posting Signs for American Recovery and Reinvestment Act Projects

In response to a request from the Recovery Accountability and Transparency Board (Board), we performed a review of the U. S. Department of Housing and Urban Development's (HUD) guidance to the American Recovery and Reinvestment Act (Recovery Act) recipients to post signs, logos, and emblems intended to publicly identify the expenditure of Recovery Act or "stimulus" funds. The Board was asked by Congressman Darrell Issa, ranking member of the Committee on Oversight and Government Reform, to determine the scope and impact of the Obama Administration's guidance to recipients on what he stated was politicized stimulus advertising. The Board in turn asked us to respond to a series of inquiries regarding such advertising as it pertained to HUD's Recovery Act programs. Congressman Issa characterized HUD's stimulus advertising as the most overtly political guidance that "provided recipients a suggested sign template informing the public that projects have been funded by American Recovery and Reinvestment Act, Barack Obama, President."

Our objective was to determine whether HUD required or encouraged its Recovery Act recipients to post signs to publicly identify projects that were funded with stimulus funds. We concluded that for two programs, HUD initially included provisions in the grant agreements requiring posting of signs. HUD subsequently issued agency-wide guidance that "encouraged" Recovery Act recipients to post signs.

Issue Date: June 25, 2010
Audit Report No.: 2010-AT-0001
File Size: 143KB

Title: HUD Evaluated and Selected Applications for the Recovery Act's Neighborhood Stabilization Program 2 in Accordance With Applicable Requirements

We evaluated the U.S. Department of Housing and Urban Development's (HUD) award process for the Neighborhood Stabilization Program 2 (NSP2). We initiated the review as part of the activities in our fiscal year 2010 annual audit plan. Our primary objective was to determine whether HUD's methodology and controls for the evaluation and selection of applications for the $1.93 billion in NSP2 funds were in accordance with applicable requirements. We added a second objective to determine whether HUD included special conditions in the grant agreements of high-risk grantees.

HUD's methodology and controls for evaluating and selecting the applications were in accordance with requirements in the notice of fund availability. HUD followed the required procedures for evaluating applications against threshold requirements, such as program eligibility, and then rated the applications that passed threshold requirements against the six rating factors. At each step, HUD applied quality control procedures to ensure that its decisions were correct and supportable. HUD then ranked the applications according to their scores and properly selected 56 for funding. We expanded our work to review the grant agreements for the 56 selected grantees and found that HUD included special conditions as required by the regulations.

There are no recommendations in this report since no reportable deficiencies were identified.

Issue Date: May 14, 2010
Audit Report No.: 2010-DP-0002

Title: Fiscal Year 2009 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 2009 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: April 16, 2010
Audit Memorandum No.: 2010-BO-0801
File Size: 61KB

Title: HUD Region 1 Community Planning and Development Offices' Monitoring of Homelessness Prevention and Rapid Re-Housing Program Grants Funded Under the American Recovery and Reinvestment Act Was Appropriately Targeted to Higher Risk Grantees

We reviewed the U.S. Department of Housing and Urban Development's (HUD) Office of Community Planning and Development's (CPD) risk assessment process. We initiated the review as part of the activities in our fiscal year 2010 annual audit plan. Our objective was to determine whether CPD had established and properly implemented a risk assessment process that used appropriate measures to determine risk and identify grantees for monitoring.

We found that CPD had established and implemented a risk assessment process that used relevant assessment factors to determine risk and identify grantees for monitoring. We identified and reviewed risk assessment factors in existence, evaluated whether they were adequate, and considered additional factors required under the American Recovery and Reinvestment Act 0f 2009. The risk assessment factors in place were adequate to identify grantees for appropriate monitoring. Additionally, the risk analyses prepared annually were used to select grantees for later monitoring.

There are no recommendations made in this report since no reportable deficiencies were identified.

Issue Date: April 16, 2010
Audit Report No.: 2010-KC-0001
File Size: 207KB

Title: HUD Took Appropriate Steps to Improve Its Controls over Net Restricted Assets but Overpaid Section 8 Set-Aside Funds to One Public Housing Agency

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Public Housing and Voucher Programs to determine whether HUD reasonably ensured that public housing agencies properly managed their housing choice voucher net restricted assets and to determine whether HUD appropriately awarded 2009 set-aside fund awards for unforeseen circumstances and higher than average leasing. We found that HUD had already discovered it did not have accurate information about public housing agency net restricted assets and was taking appropriate steps to improve its controls. We also found that HUD did not ensure about $18,000 in set-aside funds was used for its intended purpose. HUD immediately resolved this discrepancy.

We recommend that the Office of Public Housing and Voucher programs (1) rectify the discrepancy for the award overpayment, (2) check the accuracy of other unforeseen circumstance awards made for similar tenant income reductions and rectify any discrepancies, and (3) correct the process for future similar awards.

HUD agreed with the recommendations and has already addressed them. Therefore, we will close the recommendations upon issuance of the report.

Issue Date: April 13, 2010
Audit Report No.: 2010-FW-0002
File Size: 113KB

Title: HUD's Recapture and Reallocation Plan for Recovery Act Public Housing Capital Fund Grants Had Weaknesses

We audited the U. S. Department of Housing and Urban Development's (HUD) compliance with obligation, recapture, and reallocation requirements for the American Recovery and Reinvestment Act of 2009 (Recovery Act) Public Housing Capital Fund program. Specifically, its plans to recapture unobligated Recovery Act Public Housing Capital Fund formula grants by the March 17, 2010 obligation deadline and to reallocate the recaptured funds. HUD's plan was a generalized description of the process it would undertake to recapture and reallocate formula grant funds not obligated by the deadline. HUD should improve its plan by revising it to include more detailed procedures for accomplishing HUD's goals and a timeline for completing them and use this plan for future recapture and reallocation events.

Issue Date: April 13, 2010
Audit Report No.: 2010-CH-0002
File Size: 235KB

Title: The Office of Affordable Housing Programs ' Oversight of Resale and Recapture Provisions for HOME Investment Partnerships Program-Assisted Homeownership Projects Was Inadequate

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Affordable Housing Programs' (Office) oversight of resale and recapture provisions for HOME Investment Partnerships Program (Program)-assisted homeownership projects (project). The audit was part of the activities in our fiscal year 2009 annual audit plan to contribute to improving HUD's execution of and accountability for its fiscal responsibilities and our strategic plan to help HUD resolve its major management challenges. Our objective was to determine whether HUD's Office had adequate oversight of participating jurisdictions' use of resale and recapture provisions to enforce HUD's affordability requirements for Program-assisted projects.

HUD's Office did not ensure that participating jurisdictions complied with HUD's requirements in their use of resale and recapture provisions to enforce HUD's affordability requirements for Program-assisted projects. Of the 40 projects selected for review, 27 participating jurisdictions did not include appropriate resale and/or recapture provisions in their 29 consolidated and/or action plans that were in effect at the time the participating jurisdictions set up 32 projects in HUD's Integrated Disbursement and Information System. Further, 18 participating jurisdictions did not ensure that appropriate resale or recapture provisions were implemented for 21 projects. In addition, three participating jurisdictions did not ensure that HUD's interest was sufficiently protected in three projects for which more than $43,000 in Program funds was used for home-buyer assistance.

We recommend that HUD's Deputy Assistant Secretary for Grant Programs require the Office to

• Ensure that the State of New York and Cobb County, GA, Consortium, reimburse their Programs $30,000 and $9,947, respectively, for the two projects for which they did not ensure that they met HUD's affordability requirements;

• Ensure that the State of Montana places a deed restriction, land covenant, affidavit, and/or lien on a property to ensure that it would recoup all or a portion of the $3,139 in Program funds used for a project if the housing does not continue to be the principal residence of the household for the duration of the affordability period or reimburse its Program $3,139; and

• Implement adequate procedures and controls to address the finding cited in this audit report.

Title: The Office of Block Grant Assistance Lacked Adequate Controls Over the Inclusion of Special Conditions in Neighborhood Stabilization Program Grant Agreements

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Block Grant Assistance's (Office) controls over special conditions in Neighborhood Stabilization Program grant agreements under Title III of the Housing and Economic Recovery Act of 2008 (Act) as amended. The audit was part of the activities in our fiscal year 2010 annual audit plan. Our objective was to determine whether HUD's Office ensured that HUD's Office of Community Planning and Development field offices (field offices) were consistent in their consideration and inclusion of special conditions in Neighborhood Stabilization Program grant agreements with high-risk grantees.

HUD's field offices used different procedures for including special conditions in Neighborhood Stabilization Program grant agreements under the Act. HUD's Office did not ensure that the field offices were consistent in their consideration and inclusion of special conditions in Neighborhood Stabilization Program grant agreements with high-risk grantees.

We recommend that HUD's Deputy Assistant Secretary for Grant Programs require HUD's Office to determine whether Neighborhood Stabilization Program grantees under the Act are high risk by considering grantees' past performance or other serious actions in their HOME Investment Partnerships (HOME), Emergency Shelter Grant, and Supportive Housing programs. If the Neighborhood Stabilization Program grantees are high risk, they should be required to develop and implement management plans for their Neighborhood Stabilization Programs that will include but not be limited to describing how unresolved HOME, Emergency Shelter Grant, and/or Supportive Housing program performance issues were resolved or are being resolved and explain whether the issues will impact the administration of their Neighborhood Stabilization Programs.

Issue Date: March 18, 2010
Audit Report No. 2010-BO-0002
File Size: 93KB

Title: HUD's Office of Community Planning and Development Had Established and Implemented an Appropriate Risk Assessment Process

We reviewed the U.S. Department of Housing and Urban Development's (HUD) Office of Community Planning and Development's (CPD) risk assessment process. We initiated the review as part of the activities in our fiscal year 2010 annual audit plan. Our objective was to determine whether CPD had established and properly implemented a risk assessment process that used appropriate measures to determine risk and identify grantees for monitoring.

We found that CPD had established and implemented a risk assessment process that used relevant assessment factors to determine risk and identify grantees for monitoring. We identified and reviewed risk assessment factors in existence, evaluated whether they were adequate, and considered additional factors required under the American Recovery and Reinvestment Act 0f 2009. The risk assessment factors in place were adequate to identify grantees for appropriate monitoring. Additionally, the risk analyses prepared annually were used to select grantees for later monitoring.

There are no recommendations made in this report since no reportable deficiencies were identified.

Issue Date: February 26, 2010
Audit Report No. 2010-PH-0001
File Size: 2MB

Title: HUD's Philadelphia, PA, Homeownership Center Did Not Always Ensure That Required Background Investigations Were Completed for Its Contracted Employees

In accordance with our annual audit plan and due to concerns regarding the U.S. Department of Housing and Urban Development's (HUD) capacity to handle the increasing demand for loans insured by the Federal Housing Administration (FHA), we initiated an audit of HUD's Philadelphia, PA, Homeownership Center (Center). This is the first of two audit reports that we plan to issue on the Center's capacity to process current demand for FHA loans. The audit objective addressed in this report was to determine whether the Center processed FHA loan applications in accordance with applicable policies and procedures and ensured that required background investigations were completed for its contracted employees that performed functions associated with FHA loans.

The Center generally processed FHA loans in accordance with applicable policies and procedures. However, it did not always ensure that required background investigations were completed for its contracted employees that were responsible for processing FHA loan applications and monitoring the quality of lenders' underwriting. The Center had 29 contracted employees that were responsible for performing functions associated with FHA loans. Of the 29 contracted employees, 16, or 55 percent, had not been through minimum background investigations required by contract clauses and HUD's policies on personnel security/suitability. HUD spent more than $5.4 million on services from contracted employees that may not have been eligible to access its computer systems and other information sources containing sensitive personally identifiable information.

We recommend that the Deputy Assistant Secretary for Single Family Housing direct the Center to (1) initiate and follow up on the required minimum background investigations for its contracted employees that have not been investigated to justify more than $5.4 million spent on the related contracts and (2) develop and implement controls to ensure that its contracted employees comply with contract terms and applicable HUD security policies.

Issue Date: February 18, 2010
Audit Report No. 2010-BO-0001
File Size:

Title: HUD Was Not Effective in Recovering the New London Housing Authority From Troubled Status and Did Not Take the Required Regulatory or Statutory Action

We initiated the audit of the U.S. Department of Housing and Urban Development's (HUD) efforts to recover the City of New London, CT, Housing Authority (Authority) due to its longstanding troubled status. The Authority has had significant management deficiencies for more than 10 years, and HUD identified the Authority as "overall troubled" in May of 2004. Our objective for this audit was to evaluate HUD's effectiveness in identifying and helping to correct deficiencies at the Authority.

HUD had detected significant deficiencies but had not been effective in recovering the Authority from its longstanding troubled status. Although HUD provided extensive technical and monetary assistance and entered into a number of binding memorandums of agreement requiring improvement, the Authority's condition continued to decline, it could not meet its debt obligations, and it remained troubled. The Authority has been troubled primarily due to the poor management of its Federal and State housing programs. In addition, its Federal housing projects did not meet HUD's minimum housing standards.

HUD failed to take action in a timely manner when the Authority failed to make substantial progress in correcting its deficiencies. As a result, the Authority's financial condition declined, creditors were not paid, liens were placed on its housing projects, and its rent receipts may be placed in receivership unless more than $1.7 million in unpaid utility bills is paid by January 2010. In addition, the Authority improperly used more than $524,000 in Federal funds for State programs, $105,000 for unsupported payments in lieu of taxes, $99,000 in Federal capital funds for State security patrols, and $97,000 for unsupported and unreasonable renovations and painting.

We recommend that the Director of HUD's Boston Office of Public Housing ensure that the Authority (1) establishes and implements a financial/business plan to pay its creditors, avoid having a local receivership lien placed against its rents , and remove liens; (2) enters into an agreement to repay more than $900,000 in water and sewer bills; (3) properly accounts for its revolving account, stops using Federal funds for State programs, and repays its Federal programs an estimated $524,879; (4) repays or supports $97,106 paid for unreasonable and unsupported contract maintenance costs; and (5) repays or supports $99,939 in Federal funds paid for State security patrols.

We recommend that the Director of the Office of Field Operations (1) implements a formal process to report troubled housing agencies to the Assistant Secretary for Public Housing for a determination of the corrective actions required by HUD regulations and Federal statutes and (2) notifies the Deputy Assistant Secretary for Public Housing that the Authority is in danger of having a local receivership lien placed against its rents.

We recommend that the Director of the Departmental Enforcement Center pursue all administrative and/or civil monetary penalties for the regulatory agreement violations disclosed in this finding. In implementing this recommendation, the Deputy Director should consider all of the issues discussed in this report and audit report 2009-BO-1010.

In addition, the Authority has exceeded the maximum statutory recovery period, and our prior audit report number 2009-BO-1010, issued August 7, 2009, recommended that the Deputy Assistant Secretary for Field Operations inform the Assistant Secretary for Public and Indian Housing of the Authority's inability to improve its score or meet the goals of the memorandum of agreement with HUD and determine the statutory remedies required under section 6(j) of the U.S. Housing Act of 1937. Therefore, the findings in this report should also be considered when implementing that recommendation.

Title: Review Results of Hotline Case Number HL-09-0756, Kaibab Band of Paiute Indians, Pipe Spring, Arizona

In response to an April 3, 2009, hotline request from the Kaibab Band of Paiute Indians, Pipe Spring, AZ (Kaibab), the U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed HUD's evaluation of Kaibab's application for an Indian Community Development Block Grant (Indian Block Grant) under HUD's 2008 notice of funding availability. The review objective was to evaluate the merits of the complainant's allegation that the HUD Southwest Office of Native American Programs (Southwest Office) treated Kaibab's application prejudicially without providing for a fair review.

Our review did not find evidence that the Southwest Office treated Kaibab's 2008 Indian Block Grant economic development grant application with prejudice or failed to provide a fair review.

· The grant application review procedures-as related to project-specific threshold screening-were performed in compliance with program requirements. However, we noted that the review processes were not standardized in a way that easily precluded any perception of unfairness. Specifically, the Southwest Office assigned applications to grants management specialists without regard to ensuring impartial treatment in appearance and in fact. Although economic development proposals tended to be uncommon and more complicated than other Indian Block Grant proposals, application reviewers did not receive training or guidance regarding the evaluation of such proposals. Finally, the Southwest Office did not require reviewers to clearly and thoroughly document the reasons for their determination that an application failed to meet threshold requirements and, therefore, would not be rated or ranked.

· We determined that the Southwest Office reviewers' determinations regarding specific threshold criteria were generally defensible and made in good faith. We agreed that some of the concerns raised by the reviewers regarding criteria for financial feasibility, reasonable chance of success, and public benefit were defensible. We also identified significant weaknesses in the proposals that were not directly addressed by the reviewers.

· We concluded that the Southwest Office's overall decision that Kaibab's application did not meet all threshold requirements in 2008 (and in 2007) was within the parameters of applicable program criteria. We noted that the Indian Block Grant project-specific threshold criteria and related guidance were nonspecific regarding key requirements for economic development proposals. Accordingly, reviewers had substantial discretion regarding their approach to evaluating financial feasibility for the threshold screening. Further, economic development proposals represented less than 7 percent (in 2008) of the Indian Block Grant applications to the Southwest Office, and the projects were generally perceived to entail greater risk of failure to succeed in the long run. As a result, all economic development proposals-not just the Kaibab proposal-faced similar barriers to approval and funding.

We recommend that the Office of Native American Programs Director of Grants Management require the Southwest Office Administrator to establish a consistent process for assignment of grant applications to reviewers, develop standards to ensure that written review comments are clear and complete, and develop a consistent evaluation approach for certain nonspecific project eligibility criteria.

Issue Date: January 15, 2010
Audit Memorandum No. 2010-FW-0801
File Size:436.21KB

Title: HUD Guidance on American Recovery and Reinvestment Act Capital Fund Physical Needs Assessment

We reviewed the U. S. Department of Housing and Urban Development's (HUD's) guidance on using American Recovery and Reinvestment Act of 2009 (Recovery Act) capital funding for physical needs assessments. Our objective was to determine whether HUD's guidance to grantees on using Recovery Act capital funds for physical needs assessments was sufficient to ensure grantees had the information needed to avoid missing the grant obligation deadline of March 17, 2010. HUD took actions in a timely manner to address concerns raised during the review. We made no further recommendations.

Issue Date: January 12, 2010
Audit Memorandum No. 2010-PH-0801
File Size: 377.29KB

Title: HUD's Regulatory Agreement with the Yorkville Cooperative Does Not Protect HUD's Interest

We performed this review at the request of the U.S. Department of Housing and Urban Development's (HUD) Multifamily Program Center, Richmond field office, due to concerns regarding the appropriateness of HUD's current regulatory agreement with the Yorkville Cooperative (Cooperative). Our objective was to determine if HUD entered into the appropriate regulatory agreement with the Cooperative for its Section 221(d)(3) program.

HUD and the Cooperative did not enter into an appropriate regulatory agreement for participants of the Section 221(d)(3) program. The regulatory agreement executed in 1979 was intended for entities participating in the Multifamily Insurance program but it did not include specific regulatory requirements needed for entities participating in the program as cooperatives. The agreement failed to include necessary requirements pertaining to the general operating reserve account.

We recommend that the Director of HUD's Multifamily Program Center, Richmond field office enter into an amended regulatory agreement with the Cooperative. The regulatory agreement should include a rider pertaining to the general operating reserve. This will ensure that the $989,521 in reserve funds will only be used for eligible expenses.

Issue Date: January 12, 2010
Audit Report No. 2010-HA-0001
File Size: 1.25MB

Title: HUD's Office of Healthy Homes and Lead Hazard Control Awarded Grants to Ineligible Applicants

We audited the U.S. Department of Housing and Urban Development's Office of Healthy Homes and Lead Hazard Control's (OHHLHC) selection procedures used to award American Recovery and Reinvestment Act of 2009 (Recovery Act) grants. Our objective was to determine whether OHHLHC awarded (1) Recovery Act funds in accordance with the selection criteria specified in the fiscal year 2008 notices of funding availability (notices) and the Recovery Act and (2) fiscal year 2008 funds in accordance with the selection criteria.

We determined that OHHLHC did not have adequate controls to ensure that only qualified applicants were selected to receive grant funds. As a result, OHHLHC improperly awarded $1.9 million in Recovery Act funds to the City of Greenville, NC (Greenville), and $874,821 to Healthy Homes Resources. In addition, OHHLHC awarded $3 million in fiscal year 2008 funds to the City of Cincinnati, OH (Cincinnati).

We recommend that the Director of OHHLHC rescind the $2.8 million in Recovery Act funds that was improperly awarded to Greenville and Healthy Homes Resources, ensure that the selection procedures are followed, and take appropriate actions against employees. We also recommend that the Director of OHHLHC rescind the $3 million in fiscal year 2008 funding that was awarded to Cincinnati, ensure that the application review panels follow threshold review requirements when determining eligibility, and take appropriate action against employees who circumvented the regulations.

Issue Date: December 15, 2009
Audit Memorandum No. 2010-AO-0801
File Size: 878.78KB

Title: HUD Needs to Ensure That the Housing Authority of New Orleans Strengthens Its Capacity to Adequately Administer Recovery Funding

As part of the Housing and Urban Development (HUD) Office of Inspector General's obligation to ensure accountability and transparency in use of the American Recovery and Reinvestment Act of 2009 (ARRA) funds, we performed a review to assess the Housing Authority of New Orleans' (Authority) capacity to administer $34.5 million in ARRA funding. Our objective was to evaluate the Authority's capacity and risks in the following areas: basic internal controls, financial operations, procurement, and outputs/outcomes.

The Authority had capacity deficiencies related to internal controls, financial operations, procurement, and inventory. Specifically, the Authority lacked (1) internal control capacity related to staffing levels and segregation of duties; (2) financial capacity related to its accounts payable procedures, financial policies, and independent public accountant reviews; and (3) procurement capacity, as the Authority did not always comply with the procurement policy and the policy was not always clear. The Authority generally ensured that its outputs and outcomes related to rehabilitation contracts were adequate. However, it did not maintain an adequate inventory listing of items removed from some of the rehabilitated projects. Due to capacity limitations, the Authority will encounter difficulty in both obligating and expending the $34.5 million in ARRA funds within the statutory time limits. While the Authority had taken measures to develop policies and procedures for obligating and expending the ARRA funds, the Authority's prior performance continues to raise serious concerns about the Authority's ability to comply with the statutory requirements and safeguard these limited resources. Therefore, HUD, as the Authority's administrative receiver, must make a realistic determination on the Authority's ongoing capacity limitations.

We recommended that HUD's Deputy Assistant Secretary require the Authority to (1) support or repay unsupported disbursements totaling $321,462; (2) maintain adequate staffing levels in its Finance, and Contracting and Compliance Departments, based upon the organizational structure. In addition, as related to the Finance Department, the Authority should obtain qualified staff to perform the accounts receivable function; (3) amend its finance policies to specify approving officials, appropriate staff titles, and required approval forms and procedures. In addition, the Authority should incorporate in its finance policy procedures related to expenditure of prepaid items and ensuring that independent public accountant audit findings are addressed in a timely manner; (4) consider cross-training employees in the Finance Department and rotate respective roles periodically in an effort to prevent collusion; (5) amend its procurement policy to comply with 24 CFR 85.36; (6) consider labeling all asset inventory items obtained for rehabilitation before placing items into the inventory to ensure that its assets are safeguarded; adequately accounted for; and protected from loss, damage, and theft; (7) obtain a contractor to oversee the contracting, and the progress and completion of the work activities; and (8) contract with an accounting firm to maintain a separate accounting and biweekly reporting of ARRA funds expended on ARRA activities. We also recommended that HUD's Deputy Assistant Secretary request that the Assistant Secretary for Public and Indian Housing immediately deobligate all or some of the Authority's ARRA funds and reallocate the funds to housing authorities that can utilize the funds, if the lack of capacity continues and indicates the Authority's inability to obligate or complete the planned work by the statutory deadline.

Issue Date: December 11, 2009
Audit Report No. 2010-DP-0001
File Size: 620.03KB

Title: Review of Ginnie Mae's Controls over Its Information Technology Resources (Redacted Report)

We completed an audit of the Government National Mortgage Association's (Ginnie Mae) controls over its information technology (IT) resources. We assessed whether Ginnie Mae's management of its information systems complied with the U.S. Department of Housing and Urban Development's (HUD) IT policies and federal information system security requirements. The audit was performed in support of our annual financial statement audit of Ginnie Mae and our annual evaluation of HUD's information system security program within the context of the Federal Information Security Management Act (FISMA). OIG has determined that the full contents of this report would not be appropriate for public disclosure and is releasing this redacted version to the public.

Issue Date: December 7, 2009
Audit Report No. 2010-BO-1801
File Size: 54.55KB

Title: The State of Vermont 's Agency of Commerce and Community Development Had Sufficient Capacity To Effectively Administer Its Neighborhood Stabilization Program

In accordance with our goal to review and ensure the proper administration of Neighborhood Stabilization Program (NSP) funds provided under the Housing and Economic Recovery Act of 2008 (HERA) and/or the American Recovery and Reinvestment Act of 2009 (ARRA), we conducted a capacity review of the operations of the State of Vermont's (State) Agency of Commerce and Community Development (Agency), which has responsibility for administering the State's NSP. Our objective was to determine whether the Agency had the necessary capacity to effectively and efficiently administer the NSP funds provided through HERA.

This memorandum report contains no recommendations

Issue Date: November 18, 2009
Audit Report No.: 2010-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)

Issue Date: November 16, 2009
Audit Report No. 2010-FO-0003

Title: Additional Details to Supplement Our Report on HUD's Fiscal Years 2009 and 2008 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 2009 and 2008 Financial Statements, which is included in HUD's Fiscal Year 2009 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) eleven 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 13, 2009
Audit Report No. 2010-FO-0002

Title: Audit of the Federal Housing Administration's Financial Statements for Fiscal Years 2009 and 2008

This report presents the results of Urbach Kahn and Werlin LLP (UKW) audit of the fiscal year 2009 and 2008 financial statements of the Federal Housing Administration (FHA). The report on FHA's financial statements, dated November 9, 2009 includes an unqualified opinion on FHA's financial statements. The report contains four significant deficiencies in FHA's internal controls and one reportable instance of noncompliance with laws and regulations. The report contains 15 new recommendations. 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 operation that are not material to the financial statements and are being communicated separately to FHA's management.

Issue Date: November 12, 2009
Audit Report No. 2010-LA-0001

Title: HUD's Performance-Based Contract Administration Was Not Cost Effective

We audited the U.S. Department of Housing and Urban Development's (HUD) annual contributions contracts (contract) for performance-based Section 8 contract administration (PBCA).  We audited this contract because our prior audit of HUD payments to the PBCAs for certain performance standards indicated that HUD was not getting the best value for the dollars spent on the PBCA's services.  Our audit objective was to determine whether the performance-based contract administration contract was cost effective.

We found that HUD did not always ensure accountability for results and include appropriate, cost-effective controls over its contracts.  Consequently, HUD did not obtain the best value for the $291 million spent in 2008 on contract administration services.  In particular, HUD spent $107 million of this amount on incentive fees.  While we could not quantify how much of this amount was excessive, HUD continued to pay incentives for tasks that were included in the PBCAs' basic fees.  In addition, at least $7.6 million may be wasted each year because HUD continues to extend the existing contracts beyond the original contract term of five years.

We recommend that the Deputy Assistant Secretary for Multifamily Housing perform a detailed analysis to determine the most cost-effective method of performing the contract administration tasks.  After selecting the best method, we recommend that the Deputy Assistant Secretary for Multifamily Housing ensure accountability for results and include appropriate, cost-effective controls in its contracts.

Issue Date: November 10, 2009
Audit Report No.: 2010-FW-0001
File Size: 1.61MB

Title: HUD Did Not Maintain Documentation to Determine if Public Housing Agencies Took Corrective Action on its January 7, 2008 Memorandum and Public Housing Agencies Paid an Estimated $7 Million for Deceased Tenants

We audited the U. S. Department of Housing and Urban Development's (HUD) controls over Housing Choice Voucher program payments for deceased tenants and invalid Social Security numbers as part of the regional audit plan. In previous audits of public housing agencies (agencies), we identified problems with excess housing assistance payments for deceased tenants. We wanted to determine whether HUD monitored agencies' actions in response to its January 7, 2008, memorandum, informing them that they had paid rental assistance for deceased tenants, and the extent, accuracy, and impact of payments on behalf of deceased tenants. We also wanted to determine whether agencies paid rental assistance for tenants with invalid Social Security numbers.

HUD took the positive initiative to identify deceased tenants receiving rental assistance and notified agencies of this through a January 7, 2008 memorandum. HUD implemented the deceased tenants report within the Enterprise Income Verification system as a control for agencies to monitor deceased tenants. HUD also checked for invalid Social Security numbers. However, HUD did not monitor the agencies' actions in response to its memorandum. This would include whether the agencies received reimbursement for ineligible rental assistance payments made for deceased tenants and whether they corrected information submitted to HUD.

HUD did not retain documentation supporting its memorandum and, therefore, could not monitor agencies' responses to the memorandum. Further, because the deceased tenants report did not record the date of death for all deceased tenants, reconciling information and documenting improvement were difficult. Based on analysis of Public and Indian Housing Information Center system (PIC) data and the deceased tenants report, we estimated that agencies paid approximately $7 million in questionable payments on behalf of deceased tenants in single-member households. Also, agencies did not update the family composition on the form HUD-50058, in a timely manner, which resulted in incorrect information maintained in HUD's PIC system. However, agencies did check for invalid Social Security numbers before making housing assistance payments, and we did not find any reportable conditions.

We recommended that HUD improve its monitoring so that it can measure corrections to agency reported data maintained in HUD's PIC system and measure agency progress in limiting payments made on behalf of deceased tenants. Further, HUD should require agencies to support or repay its programs for questionable payments made on behalf of deceased tenants.

Issue Date: November 5, 2009
Audit Report No.: 2010-FO-0001
File Size: 536.76KB

Title: Audit of Government National Mortgage Associations (Ginnie Mae) Financial Statements for Fiscal Years 2009 and 2008

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, 2009 and 2008. In CBTC's opinion, the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 2009 and September 30, 2008 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 which was a repeat finding from last fiscal year 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 30, 2009
Audit Memorandum No.: 2010-DP-0801
File Size: 361.27KB

Title: Review of HUD's Process for Monitoring Recipient Reporting for the American Recovery and Reinvestment Act of 2009

We audited HUD's process for monitoring recipient reporting for the American Recovery and Reinvestment Act of 2009 (Recovery Act). The Recovery Accountability and Transparency Board (Board), created by the Recovery Act, has required the Inspector General community to evaluate Federal agencies' process for monitoring recipient reporting of Recovery Act funds for the quarter ending September 30, 2009. The audit reports are to be issued to their agencies no later than October 30, 2009. The reports will also be submitted to the Board, which will compile the results and issue a consolidated report with recommendations for improvement across the Federal government. Our audit objective was to determine whether HUD had developed a process for performing limited data quality reviews of recipient reporting of recovery funds.

We found that HUD has made progress in the quality assurance process. HUD has established a Recovery Implementation Team that has developed Department-wide policies and procedures and provided guidance to HUD program offices. The Recovery Implementation Team has developed a process for performing limited data quality reviews of recipient reporting of Recovery Act funds. The team has also developed procedures to identify and notify the recipients of the need to make appropriate and timely changes to data submissions. HUD has begun reviewing data reported to FederalReporting.gov by recipients and identified possible data errors that require follow-up.

We also found areas that HUD needs to address, specifically, (1) not all prime recipients have filed all of the required quarterly reports, (2) HUD has not ensured that the prime recipients review the data submitted by subrecipients, and (3) HUD has not developed a process to identify subrecipients that demonstrate systemic or chronic reporting problems and/or otherwise fail to correct such problems as identified by the primary recipients.

Issue Date: October 26, 2009
Audit Memorandum No.: 2010-LA-0802
File Size: 326.33KB

Title: Evaluation of the ONAP Final Front-End Risk Assessment for the Native American Housing Block Grant

We reviewed the Office of Native American Programs' (ONAP) Front-End Risk Assessment (FERA) for the American Recovery and Reinvestment Act of 2009 (Recovery Act) funding for Native American Block Grant housing programs as part of our annual audit plan. Our objective was to determine whether the FERA complied with the Office of Management and Budget's (OMB) guidance for implementation of the Recovery Act, the Recovery Act's streamlined FERA process, and U.S. Department of Housing and Urban Development (HUD) Handbook 1840.1, Departmental Management Control Program.

The FERA was generally prepared in accordance with OMB requirements and the Recovery Act programs are similar to the existing NAHASDA program. We perceive that the overall risks will also be similar to those under NAHASDA, except for those associated with the additional workloads. The FERA stated that ONAP planned to fill 34 existing vacancies and hire an additional 12 temporary employees to meet the increased reporting requirements and other responsibilities under the Recovery Act. However, if ONAP hires a significant number of new staff, it will need to ensure that the new staff members receive sufficient and timely training to be effective in the administration and oversight of Recovery Act funds.

Issue Date: October 1, 2009
Audit Report No.: 2010-LA-0801
File Size: 135KB

Title: HUD's Need to Make a Final Determination on Whether San Diego Square Subleased Property is HUD Insured, San Diego, CA

We performed a review of the San Diego Square (Square) project in response to a hotline complaint. The complainant stated that San Diego Kind Corporation (Corporation) misappropriated a lease prepayment of $480,060 and HUD failed to enforce program rules and regulations after detecting the misappropriation. Our objective was to determine whether the complaint was valid. We were unable to determine whether the allegations were valid. The sublease transaction occurred over 20 years ago, so many of the project records could not be located or are no longer available. Therefore, we could not make a final determination as to whether the hotline complaint was valid. As a result, it is incumbent upon HUD to resolve this matter by making a final determination on whether the subleased area was or was not built and insured under the Section 202 loan. We recommend that HUD make a final determination and provide official written notification to the Corporation as to whether the subleased area of the Square is considered part of the Section 202-insured project and, therefore, rental revenue it received in the past, and will receive in the future, for use of space on the project must be recognized as project income.

Issue Date: September 30, 2009
Audit Report No.: 2009-DP-0008
File Size: 582.22KB

Title: Audit Report on the Review of Recovery Act Management and Reporting System (RAMPS)

We audited the U.S. Department of Housing and Urban Development's (HUD) management procedures, practices, and controls related to the Recovery Act Management and Reporting System (RAMPS) to assess HUD's compliance with reporting requirements under the American Recovery and Reinvestment Act (Recovery Act). We also reviewed whether the RAMPS project team followed Federal and HUD's security requirements during the development of RAMPS.

We found that HUD has taken the following actions to comply with the reporting requirements under the Recovery Act:

• Worked with program offices and developers to identify and develop a process for the NEPA and recipient reporting requirements;

• Conducted security categorization and vulnerability scans early in the system development process; and

• Developed business requirements and provided those requirements to the Office of IT security for review early in the system development process.

However, HUD's effort to implement procedures, practices, and controls related to RAMPS did not fully meet the reporting requirements under the Recovery Act. Specifically, (1) HUD did not meet the Recovery Act's National Environmental Policy Act (NEPA) reporting requirements to ensure that NEPA data were reported to the public in a timely and accurate manner, and (2) HUD did not complete required security and privacy documents before or during the early phase of system development.

Issue Date: September 30, 2009
Audit Memorandum No.: 2009-NY-0803
File Size: 109KB

Title: Front End Risk Assessments for the American Recovery and Reinvestment Act Capital Fund Program for Formula and Competitive Grants

The U.S. Department of Housing and Urban Development's (HUD) Office of the Inspector General reviewed HUD's Front End risk Assessment (FERA) for the Capital Fund Formula and Competitive Grant Programs funded under the American Recovery and Reinvestment Act of 2009 (Recovery Act). Our objectives were to determine whether HUD's front-end risk assessment of the programs complied with the Office of Management and Budget (OMB) guidance for implementing the Recovery Act, and whether HUD's risk mitigation activities were adequate in relation to the assessed level of risk. HUD's final Front End Risk Assessments for the Capital Fund Competitive and Formula Grant Programs were in general compliance with the Office of Management and Budget guidance. The risk mitigation activities in the final FERAs were adequate in relation to the assessed level of risk and OIG concerns regarding specific risk factors contained in the initial draft FERAs had been adequately addressed. As a result, there are no recommendations.

Issue Date: September 30, 2009
Audit Memorandum No.: 2009-DP-0007
File Size: 1MB

Title: Review of Selected Controls within the Disaster Recovery Grant Reporting System

We audited selected controls within the Disaster Recovery Grant Reporting system (DRGR) related to Neighborhood Stabilization Program (NSP) funding because of the emergency and the transparency nature of the Housing and Economic Recovery Act and the American Recovery and Reinvestment Act, respectively, and corresponding statutory timeframes. DRGR is an existing system that was modified to track close to $5.9 billion dollars of NSP funds, the majority of which must be obligated and expended within two years. NSP I funding totaled $3.9 billion. The American Recovery and Reinvestment Act of 2009 (ARRA) revised some of the program rules and appropriated an additional $2 billion for the program, to be competitively awarded. Following the initiation of our audit, the Office of Community Planning and Development (CPD) decided to use DRGR to track the $2 billion in funding allocated to NSP II, in addition to the $3.9 billion allocated to NSP I.

Our objective was to assess risk assessment updates and whether NSP funds were properly safeguarded by the access controls related to DRGR. While we did not find misappropriation or misuse of funds in our limited review, we did find weaknesses that require CPD actions to obtain reasonable assurance that NSP funds are properly safeguarded. We found that (1) access control policies and procedures for DRGR violated HUD policy, (2) the system authorization to operate was outdated and based upon inaccurate and untested documentation, (3) CPD did not adequately separate the DRGR system and security administration functions, and (4) CPD had not sufficiently tested interface transactions between DRGR and the Line of Credit Control System. CPD had identified and initiated actions in an effort to address or mitigate many of the weaknesses identified. We commend CPD's efforts to identify and remedy the weaknesses in the DRGR system. In addition, we acknowledge that CPD efforts to initiate and proceed with modifications to DRGR have been hampered due to a lack of funding and staff resources.

Issue Date: September 30, 2009
Audit Report No.: 2009-CH-0003
File Size: 133.29KB

Title: HUD 's Oversight of FHA Lenders Underwriting of Home Equity Conversion Mortgages Was Generally Adequate

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 determine whether HUD had adequate oversight of the underwriting of HECM loans. This is the second of two audit reports regarding HUD's oversight of the program.

HUD's Processing and Underwriting and Quality Assurance Divisions generally performed adequate reviews of loans insured under the program with the exception of four loans reviewed. For the four loans, HUD did not identify errors fully address underwriting deficiencies. Further, HUD did not maintain documentation to fully determine whether the appropriate parties were checked against the General Service Administration's excluded parties' list system. General Service Administration's excluded parties list is a system that identifies those parties excluded from receiving federal contracts, certain subcontracts, and certain types of federal financial and nonfinancial assistance and benefits. As a result, HUD could benefit from improvements to its review processes to increase its assurance that lenders complied with the underwriting requirements for program loans.

We recommend that the Deputy Assistant Secretary for Single Family Housing require the Office of Single Family Housing to require the lender to reduce payments to the borrower or seek reimbursement for case number 431-4214046 for the $11,742 in excess of the borrower's initial principal limit and provide documentation for case number 105-2935187 with maximum claim amounts totaling $70,000, showing that the borrower's unacceptable rating has been resolved. If it is determined that the rating has not been resolved, the Office of Single Family Housing should seek indemnification for the life of the loan. The estimated risk to HUD for case number 105-2935187 is $37,294.

We also recommend that the Deputy Assistant Secretary for Single Family Housing require the Office of Single Family Housing to improve its existing procedures and controls for performing postendorsement technical and quality assurance reviews of program loans, to provide reasonable assurance that underwriting deficiencies will be detected, and require the lenders to reimburse the borrowers the $650 in fees charged for case numbers 412-5484306 and 412-5431355 that were deemed not customary and reasonable.

Issue Date: September 30, 2009
Audit Memorandum No.: 2009-SE-0004
File Size: 976.31KB

Title: Controls Over FHA's Single-Family Lender Approval Process Need Improvement

In response to a congressional request, we audited the Federal Housing Administration (FHA) Title II single-family lender approval process. We wanted to know whether the application process provided effective controls and procedures to ensure approval of only those lenders meeting program requirements.

Our audit found that FHA needs to improve the lender approval process. The process did not have sufficient controls and procedures to ensure that lenders met all applicable requirements for approval to participate in the FHA single-family program. In addition, FHA did not obtain or consider negative information on lenders from other HUD offices, ensure that application fees were collected, ensure that all supporting documents were obtained, or include adequate certifications on the lender application form. Further, FHA's controls over the contractor tasked with imaging lender approval files did not ensure the proper disposition of those files, which contained personally identifiable information.

We recommend that FHA ensure that lender principals and staff are free of indictment, conviction, debarment, suspension, limited denials of participation, and unpaid federal debt before applications are approved. FHA should also consult with other HUD offices to determine whether applicants are subject to unresolved findings and ensure that application fees received are reconciled with the related applications. We also recommend that FHA include a stronger lender fraud certification on the application, and improve controls over the maintenance and disposition of electronic lender files.

Issue Date: September 29, 2009
Audit Report No.: 2009-DP-0006

Title: Review of HUD's Web Application Systems (Report Not Available to Public)

We have completed an audit of the security of the U.S. Department of Housing and Urban Development's (HUD) Web applications. We evaluated security measures in place that protect HUD information, scanned identified Web applications, and identified vulnerabilities and suspect configurations that place sensitive information at risk. We conducted the audit as a component of the testing of general and technical controls for information systems in connection with (1) an 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. Security controls implemented on HUD's Web applications were inadequate. We identified security configuration and technical control deficiencies within HUD's security 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.

Title: HUD Lacked Adequate Controls to Ensure the Timely Commitment and Expenditure of HOME funds

We audited the U.S. Department of Housing and Urban Development's (HUD) HOME Investment Partnerships Program (HOME) as part of our fiscal year 2009 annual audit plan. Our audit objectives were to assess the adequacy of HUD's monitoring and implementation of requirements to recapture HOME funds not committed within two years and spent within five years, assess the adequacy of HUD's monitoring and use of its Integrated Disbursement and Information System (information system), and assess whether it was appropriate for HUD to apply the cumulative technique for assessing deadline compliance and the first-in first-out method for committing and disbursing HOME funds to participating jurisdictions.

HUD needs to improve efforts to require participating jurisdictions to cancel more than $62 million in HOME fund balances for open activities that were committed more than five years ago. The prolonged delay or failure to cancel the fund balances caused an overstatement of commitments in HUD's information system which prevented the accurate identification of funds that were subject to recapture by HUD or the United States Treasury. In addition to the excessive fund balances, we question the eligibility of more than $11.6 million disbursed to participating jurisdictions for activities that were more than five years old, showed evidence of stalled performance, and may have warranted their classification as terminated activities.

Participating jurisdictions made more than $20.9 million in incorrect commitment entries to the information system. The inaccuracies undermined the integrity of the information system and reports generated from the system. HUD did not routinely monitor the accuracy of commitments that participating jurisdictions entered into the information system, nor did it require participating jurisdictions to implement adequate internal controls over commitments they entered into the system. HUD missed the opportunity to identify and require correction of the types of deficiencies discussed in this report because it did not routinely monitor this area. The significant inaccuracies bring into question the reliability of commitments that other participating jurisdictions entered into the information system.

HUD used a cumulative technique for assessing deadline compliance and a first-in first-out method for HOME commitments and expenditures that conflicted with statutory requirements that require the identification of HOME commitments and expenditures by the program funding year to which they relate. The statutes make no mention of the cumulative technique and the first-in first-out method as acceptable alternatives. The two HUD practices contributed to the more than $62 million in old activities remaining open as discussed above. HUD would have recaptured the funds due to the missed five-year disbursement requirement were it not for the cumulative technique. The first-in first-out method, as described by HUD, contributed to misclassification of funds in HUD's financial system that are subject to recapture by HUD or by the United States Treasury pursuant to a separate statutory deadline that will be in place starting September 30, 2009.

We recommend that HUD identify which of the old open activities have been completed or terminated, cancel those balances, recapture shortfalls generated by the cancellations, and require repayments for HOME expenditures on terminated activities. We further recommend that HUD implement procedures to ensure that field offices monitor the accuracy of future commitments that participating jurisdictions enter into HUD's information system, and provide technical assistance to participating jurisdictions regarding what constitutes acceptable documentation for commitments. HUD should also require participating jurisdictions to close out old HOME activities as appropriate, reallocate remaining balances for future HOME projects in a timely manner, and establish and implement adequate internal controls over commitments they enter into the information system. Furthermore, HUD should obtain a formal legal opinion from the Office of General Counsel and revise its regulations to ensure its procedures for assessing compliance with commitment and expenditure requirements are consistent with statutory requirements.

Issue Date: September 28, 2009
Audit Memorandum No.: 2009-HA-0801
File Size: 353.41KB

Title: Evaluation of the Final-Front End Risk Assessment for the Office of Healthy Homes and Lead Hazard Control

We reviewed the front-end risk assessment (assessment) for the Office of Healthy Homes and Lead Hazard Control (OHHLHC) for the U.S. Department of Housing and Urban Development (HUD). Our objective was to determine whether the assessment complied with OMB's implementing guidance for the American Recovery and Reinvestment Act of 2009 (Recovery Act), HUD's Streamlined FERA Process, and HUD's Departmental Management Control Program handbook. HUD's assessment generally complied with the requirements. OHHLHC implemented the three recommendations included in the draft memorandum. As such, the recommendations will be closed upon issuance of this memorandum.

Issue Date: September 25, 2009
Audit Report No.: 2009-KC-0002
File Size: 163.94KB

Title: HUD's Office of Multifamily Housing Needs a Uniform Process to Ensure That Commercial Rent Rates Are Comparable to Market Rate Rents

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's process for reviewing and approving commercial rents for multifamily properties. Our objective was to determine whether HUD's review and approval process for commercial rents ensured that multifamily properties received commercial rents that were comparable to market rate rents.

HUD did not have a uniform process to ensure that commercial rent rates were comparable to market rate rents. The New York City hub was the only field office reviewed that had a written procedure for the review and approval of commercial rents.

We recommend that the Deputy Assistant Secretary of Multifamily Housing Programs, develop and implement a uniform, written process to ensure that regional and field office staff fully understand and uniformly comply with requirements to ensure that owners set commercial rents at appropriate levels.

Issue Date: September 24, 2009
Audit Report No.: 2009-FO-0006
File Size: 162.40KB

Title: Review of American Recovery and Reinvestment Act Formula Allocations

We performed an audit of the U.S. Department of Housing and Urban Development's (HUD) formula-based allocations related to five programs funded in the American Recovery and Reinvestment Act of 2009 (Recovery Act) to satisfy the Recovery Act mandate that "every taxpayer dollar spent on economic recovery be subject to unprecedented levels of transparency and accountability." We reviewed all five HUD programs with funds which were allocated based on a statutory formula. The five programs are the (1) Public Housing Capital Fund, (2) Native American Housing Block Grant program, (3) Community Development Fund, (4) HOME Investment Partnerships Program, and (5) Homelessness Prevention Fund.

Our audit found that HUD allocated the $7.96 Billion in formula-based grant funds in accordance with the requirements of the Recovery Act for each of the five programs reviewed and properly calculated the amounts to be distributed to HUD recipients.

There were no recommendations made in this report.

Issue Date: September 24, 2009
Audit Memorandum No.: 2009-AT-0801
File Size: 162.40KB

Title: Evaluation of the Front-End Risk Assessment for the Neighborhood Stabilization Program 2

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed the front-end risk assessment (assessment) for the Neighborhood Stabilization Program 2 (NSP2). Our objective was to determine whether the assessment complied with the Office of Management and Budget's (OMB) updated guidance for the American Recovery and Reinvestment Act of 2009 (Recovery Act), as well as HUD's streamlined assessment process. Our review of the final assessment for the program determined that except for one noncompliance issue involving open audit recommendations, HUD's final assessment generally complied with the OMB's guidance and HUD's streamlined process. HUD made general references to previous audits in its assessment, but failed to specifically address certain open recommendations as required by the guidance. HUD's final assessment for NSP2 disclosed that for each of the 11 factors, the program risk was identified, in-place and planned risk mitigation techniques were identified, and the rationale for the final risk ratings was adequately described. Our review determined that the factors of general control environment, risk assessment, control activities, information/communication, and monitoring were adequately addressed and the major program objectives of timeliness, clear and measurable objectives, transparency, monitoring, and reporting were adequately emphasized. As a result, there are no recommendations in this memorandum.

Issue Date: September 24, 2009
Audit Memorandum No.: 2009-FW-0802
File Size: 172.73KB

Title: Evaluation of the Front-End Risk Assessment for the Community Development Block Grant Recovery Program

The U. S. Department of Housing and Urban Development's (HUD) Office of Inspector General evaluated the front-end risk assessment for the Community Development Block Grant Recovery (CDBG-R) grant. Our objective was to determine whether the assessment complied with the Office of Management and Budget's (OMB) updated guidance for the American Recovery and Reinvestment Act of 2009 (Recovery Act), as well as HUD's streamlined assessment process. Our review of the final assessment for the program determined that except for one noncompliance issue and some minor inconsistency errors, HUD's final assessment for CDBG-R adequately identified program risk, identified in-place and planned risk mitigation techniques, and adequately described the rationale for the final risk ratings for the 11 factors. Further, HUD's final assessment for CDBG-R adequately emphasized the major program objectives of timeliness, clear and measurable objectives, transparency, monitoring, and reporting in the assessment. As a result, there are no recommendations in this memorandum.

Issue Date: September 23, 2009
Audit Report No.: 2009-PH-0802
File Size: 170.35KB

Title: Evaluation of the Final Front-End Risk Assessment for the Tax Credit Assistance Program

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed HUD's assessment of the risk for the Tax Credit Assistance Program. Our objective was to determine whether HUD's front-end risk assessment (assessment) of the Program complied with Office of Management and Budget (OMB) guidance for implementing the Recovery Act and applicable HUD requirements. Our review of the final assessment for the Program determined that it generally complied with OMB guidance for implementing the Recovery Act and applicable HUD requirements. Our review determined that HUD adequately emphasized the factors of timeliness, clear and measurable objectives, transparency, monitoring, and reporting, and that it followed the guidance in its streamlined assessment process and management control program handbook. As a result, there are no recommendations in this memorandum.

Issue Date: September 14, 2009
Audit Report No.: 2009-CH-0801
File Size: 65.38KB

Title: Evaluation of the Final Front-End Risk Assessment of the American Recovery and Reinvestment Act of 2009's Green Retrofit Program for Multifamily Housing

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed the front-end risk assessment (assessment) of the Green Retrofit Program (program) for Multifamily Housing for HUD. Our objective was to determine whether the assessment complied with the Office of Management and Budget's guidance for the American Recovery and Reinvestment Act of 2009 (Recovery Act); the Recovery Act's Updated Implementing Guidance; and HUD's streamlined assessment process. Our review of the final assessment for the program determined that it generally complied with the Office of Management and Budget's guidance for the Recovery Act, the Recovery Act's Updated Implementing Guidance, and HUD's streamlined assessment process. Of the 11 factors evaluated in the assessment, none was found to be high risk, four were assessed as medium risk, and seven were assessed as low risk. The assessment's risk assessment chart adequately addressed planned actions for the four factors assessed as medium risk. Overall, the factors identified above had the major program objectives sufficiently emphasized in the assessment. As a result, there are no recommendations in this memorandum.

Issue Date: September 1, 2009
Audit Report No.: 2009-NY-0002
File Size: 1.27MB

Title: HUD's Administration of the Asset Control Area Program Needs Improvement

We completed an audit of the U.S Department of Housing and Urban Development's (HUD) Asset Control Area (ACA) program as a follow-up to a previous OIG audit of this program, and as a part of the Office of Inspector General's (OIG) strategic plan goals to improve HUD's fiscal accountability. The objective of the audit was to determine whether HUD administered the ACA program in compliance with ACA program requirements and federal regulations.

Generally HUD's Asset Control Area (ACA) program has increased homeownership for low and moderate income borrowers and contributed to the revitalization of blighted communities; however, HUD's administration of the ACA program was not always in compliance with ACA program requirements and federal regulations, thus it needs improvement. Specifically, 1) final ACA regulations need to be issued, 2) existing ACA program requirements need to be adequately enforced, and 3) HUD's monitoring needs to improve to ensure compliance with ACA program requirements and federal regulations.

We recommended that the Deputy Assistant Secretary for Single Family Housing instruct the Single Family Asset Management Office to develop and implement controls to ensure that the final Asset Control Area regulations are issued within a timely manner, provide additional training and technical assistance to ACA program participants and staff to ensure that they are aware of future issued ACA regulations, ensure that existing and future ACA requirements are adequately enforced, and enhance controls to ensure that HUD monitoring is effective in improving ACA participants' compliance with program requirements.

Issue Date: September 1, 2009
Audit Report No.: 2009-SE-0003
File Size: 423.27KB

Title: HUD's Monitoring of the Performance-Based Contract Administrators Was Inadequate

We initiated a review of the U.S. Department of Housing and Urban Development's (HUD) monitoring of the performance-based contract administration contract administrators (PBCA) because of our prior audits that reported that HUD paid contract administrators $27.2 million during fiscal year 2006 for work HUD had eliminated and that the Los Angeles multifamily hub did not properly monitor its contractor. Our audit objective was to determine whether HUD's monitoring of the contract administrators nationwide was adequate.

Our audit found that HUD did not adequately monitor the PBCAs' performance with respect to the Section 8 performance-based contract administration initiative resulting in a lack of assurance that Section 8 rental subsidies were correctly calculated and paid, project-based Section 8 housing assistance payments contracts were administered consistently, and it received quality work and the best value for more than $28 million spent on administrative fees paid to the PBCAs monitored by the six hubs reviewed. This condition occurred because HUD failed to establish clear, consistent policies and procedures for administering and monitoring the performance-based contract administration program.

We recommended that the Deputy Assistant Secretary for Multifamily Housing revise the performance-based contract administration initiative guides to (1) clarify inconsistencies or unclear guidance in monitoring the PBCAs, including clarification of PBCA performance that requires issuing incentive fees or the assessment of disincentives, (2) ensure that HUD staff follow the revised guidance when conducting the annual compliance reviews and monthly remote reviews to ensure that it receives quality work and the best value for funds spent on contract administration activities, and (3) reassess the resources allocated to overseeing the contract administrators to ensure that the resources are sufficient to monitor the PBCAs' performance.

Issue Date: August 28, 2009
Audit Report No.: 2009-CH-0002
File Size: 491.78KB

Title: The Office of Affordable Housing Programs ' Oversight of HOME Investment Partnerships Program Income Was Inadequate

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Affordable Housing Programs' (Office) oversight of HOME Investment Partnerships Program (Program) income (including recaptured Program funds). The audit was part of the activities in our fiscal year 2009 annual audit plan to contribute to improving HUD's execution and accountability of its fiscal responsibilities and our strategic plan to help HUD resolve its major management challenges. Our objectives were to determine whether HUD's Office had adequate oversight of Program income to ensure that participating jurisdictions disbursed Program income before drawing down Program funds and reported Program income in HUD's Integrated Disbursement and Information System (System) accurately and in a timely manner.

HUD's Office did not ensure that participating jurisdictions complied with HUD's requirements in their use of Program income and properly reported Program income in HUD's System. At least 29 of the 45 participating jurisdictions selected for review inappropriately drew down more than $79.4 million in Program funds from their HOME trust fund treasury accounts (treasury account) from January 1, 2007, through December 31, 2008, when they had available Program income. Of the 29 participating jurisdictions, 26 had more than $39.6 million in available Program income as of December 31, 2008, associated with their inappropriate drawdowns of Program funds. In addition, at least 38 of the participating jurisdictions did not report Program income in HUD's System accurately and/or in a timely manner from January 1, 2007, through December 31, 2008.

We recommend that HUD's General Deputy Assistant Secretary for Community Planning and Development require the Office to ensure that the 26 participating jurisdictions disburse the more than $39.6 million in available Program income as of December 31, 2008, for eligible housing activities and/or administrative costs before drawing down Program funds from their treasury accounts, as appropriate, and implement adequate procedures and controls to address the findings cited in this audit report.

Issue Date: August 17, 2009
Audit Report Memorandum No.: 2009-BO-0801
File Size: 47.84KB

Title: Evaluation of the Final Front-End Risk Analysis for the Homelessness Prevention and Rapid Re-Housing Program

For the U.S. Department of Housing and Urban Development's (HUD) front-end risk assessment (FERA) for the new Homelessness Prevention and Rapid Re-Housing program (HPRP), we wanted to determine whether the FERA complied with the Office of Management and Budget's (OMB) guidance for the American Recovery and Reinvestment Act of 2009 (Recovery Act); the Recovery Act's streamlined FERA process; and HUD Handbook 1840.1, REV-3, Departmental Management Control Program.

Our review of the final FERA for HPRP disclosed that for each factor the risk was identified, planned action needed, and mitigation techniques use to base its risk rating. Our review also has determined that the factors of: general control environment, risk assessment, control activities, information/communication, and monitoring have been adequately addressed and the major program objectives of timeliness, clear and measurable objectives, transparency, monitoring, and reporting were adequately emphasized.

Based on the results of this audit, this memorandum report contains no recommendations.

Issue Date: August 14, 2009
Audit Report No.: 2009-KC-0001
File Size: 595.65KB

Title: HUD Subsidized an Estimated 2,094 to 3,046 Households That Included Lifetime Registered Sex Offenders

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited HUD's requirement prohibiting lifetime registered sex offenders from admission to HUD-subsidized housing. Our audit objective was to determine the extent to which HUD-subsidized housing was occupied by lifetime registered sex offenders.

HUD subsidized an estimated 2,094 to 3,046 households that included lifetime registered sex offenders. As a result, it did not accomplish the objective of the statute to prevent admission of dangerous sex offenders, and the same offenders who were deemed too dangerous for admission were allowed to continue living in subsidized housing.

We recommended that HUD seek legislative and program rule changes to require denial of continued occupancy and termination of tenancy, or continued subsidy as appropriate, for all lifetime registered sex offenders residing in subsidized housing. If legislative changes are passed, we recommend that HUD develop and implement a plan to detect lifetime registered sex offenders occupying subsidized housing. Additionally, we recommended that HUD require projects and housing authorities to revise their admission, screening, and recertification procedures and urge them to aggressively pursue termination of assistance for lifetime sex offenders to the extent currently allowed by law.

Issue Date: August 7, 2009
Audit Memorandum No.: 2009-LA-0802
File Size: 330.87KB

Title: HUD Lacks Adequate Oversight to Require Public Housing Agencies to Separately Account for Unrestricted and Restricted Section 8 Program Administrative Fees

We performed a review of the U.S. Department of Housing and Urban Development's (HUD) oversight of public housing agencies' unrestricted and restricted Section 8 administrative fee reserves. We initiated this review because in our audits of two housing authorities, neither agency was able to clearly account for its administrative fee reserve funds and demonstrate that they were used appropriately. Our objective was to determine whether HUD had policies, procedures, and controls in place to ensure that public housing agencies properly accounted for their administrative fees and used them for their intended purpose.

We found that HUD lacks the necessary policies, procedures, and controls to ensure agencies segregate restricted and unrestricted Section 8 program fees. HUD assumed that public housing agencies maintained adequate accounting systems to track and separately account for unrestricted and restricted administrative fee reserves. As a result, HUD could not be assured that administrative fee reserves were tracked and used properly.

We recommend that the Deputy Assistant Secretary for Public Housing (1) develop and implement detailed policies, procedures, and controls to ensure that public housing agencies properly account for their administrative fees and use them in compliance with HUD rules and regulations. This recommendation includes requiring the public housing agencies to separately account for unrestricted reserves so that unrestricted and restricted reserves may be more clearly identified, (2) consider requesting the Real Estate Assessment Center add an extra line item in the Financial Assessment Subsystem to capture the unrestricted and restricted administrative fee reserves to better track those balances, and (3) require public housing agencies to perform a reconciliation of their administrative fee reserves to determine the correct balances in their restricted and unrestricted accounts. These amounts will be recognized as the beginning/ending balances in the Financial Assessment Subsystem.

Issue Date: July 23, 2009
Audit Memorandum No.: 2009-NY-0802
File Size: 416.25KB

Title: Significant Flaws Identified at the Lackawanna Municipal Housing Authority may affect its Capacity to Administer American Recovery and Reinvestment Act Funds

We are conducting an audit of the Lackawanna Municipal Housing Authority's (Authority) administration of its capital fund program. We selected this auditee because the Authority pledged its future capital fund appropriations to perform a special project as part of the Capital Fund Financing Program. Specifically, the Authority incurred a $4.25 million long-term liability to perform lead-based paint abatement and modernization work at 90 project units. The review has raised an issue of concern related to the Authority's capacity to administer its capital fund program. Specifically, t he Authority has not established the operational procedures to implement its procurement policy to ensure compliance with all applicable regulations. As a result, it lacks assurance that capital fund expenditures were necessary or reasonable and that services contracted for were provided as intended. This lack of oversight by the Authority to ensure that capital fund contracts are awarded in a prompt, fair, and reasonable manner is a major concern in light of the Authority's receiving an additional $1.5 million in capital funds under the American Recovery and Reinvestment Act of 2009. The Authority has budgeted $600,000 in Recovery Act funds to complete change orders to the lead-based paint abatement and modernization contract.

We recommend that HUD (1) review the content of the change order and, if appropriate, prohibit the Authority from using recovery funds for change orders associated with the lead abatement and modernization contract, and (2) certify that the Authority's new procedures established meet the federal procurement requirements as required by 24 CFR Part 85. We also recommend that HUD instruct the Authority to (3) establish and implement operational procedures to ensure compliance with all applicable federal, state, and local procurement policies and regulations for all future procurement activities when obtaining goods and services, (4) obtain HUD approval for all procurement activities, (5) establish and implement a training program on procurement procedures for all Authority staff and board members involved in the contracting process, and (6) establish performance measurements as a method to evaluate that the requirements of the procurement process are met.

Issue Date: July 13, 2009
Audit Report No.: 2009-LA-0001
File Size: 1.45MB

Title: The HUD Phoenix Field Office's Procedures for Monitoring the Nogales Housing Authority Were Not Adequate

We audited the U.S. Department of Housing and Urban Development's (HUD) Office of Public Housing field office in Phoenix, Arizona (Public Housing). The objective of the audit was to determine whether Public Housing's procedures for monitoring the Nogales Housing Authority (Authority) were effective. The audit was started because Public Housing performed several monitoring reviews at the Authority; however, there were indications that some of the problems found had not been corrected. Further, Public Housing staff indicated that the Authority may have used HUD funds for ineligible pension fund expenses.

We found Public Housing did not always identify and/or properly address significant deficiencies at the Authority. This condition occurred because Public Housing's monitoring and follow-up procedures were not thorough enough to (1) ensure that deficiencies at the Authority were identified and corrected and (2) determine whether the problems found were isolated incidents or systemic deficiencies. Also, Public Housing did not always apply the correct standards when performing its reviews. As a result, problems with the Authority's Section 8 and public housing programs persisted for years without appropriate corrective actions. We reviewed 14 Section 8 tenant files at the Authority and identified unsupported or ineligible housing assistance payments totaling $98,170. Additionally, Public Housing failed to appropriately address the Authority's use of HUD funds for questionable pension fund expenses totaling $171,601.

We recommend that the Director of the HUD Los Angeles Office of Public Housing require the Phoenix field office to implement procedures to improve its monitoring and follow-up processes. We also recommend that the Director require the Authority to support or reimburse $93,578 in unsupported housing assistance payments and $4,592 in ineligible housing assistance payments. Finally, we recommend that the Director review the Authority's questionable pension plan costs totaling $171,601, and require the Authority to reimburse its program if appropriate.

Issue Date: July 9, 2009
Audit Report No.: 2009-PH-0002
File Size: 609.67KB

Title: The Philadelphia, Pennsylvania, and Baltimore, Maryland, CPD Offices Did Not Adequately Document Their Monitoring of CDBG Program Grantees

We audited the U.S. Department of Housing and Urban Development's (HUD) monitoring of its Community Development Block Grant (CDBG) program grantees under the jurisdiction of the Philadelphia, Pennsylvania, and Baltimore, Maryland, Community Planning and Development (CPD) field offices as part of our annual audit plan. The audit objective was to determine whether those offices adequately monitored their CDBG program grantees to ensure that they used their grant funds to assist low- and moderate-income families through eligible activities according to HUD requirements. The Philadelphia and Baltimore CPD field offices did not adequately document their monitoring of CDBG program grantees. Specifically, the field offices did not always maintain documentation to demonstrate that their monitoring was complete and did not always notify grantees of the findings and concerns identified during on-site monitoring within the required time limit. We recommended that the Directors of HUD's Philadelphia and Baltimore CPD field offices reemphasize to their staffs the importance of following established monitoring procedures, specifically to ensure that all correspondence, documentation, and work papers relating to the monitoring and conclusions are maintained in the official monitoring files; monitoring officials use the required monitoring exhibits; monitoring officials answer all of the questions and fill in all of the text boxes in the monitoring exhibits; and staffs prepare and send notification of the monitoring results to the grantees within the required 45-day time limit. In addition, we recommended that the Directors develop and implement a written quality assurance procedure and/or mechanism to ensure that monitoring conclusions are appropriately supported by complete documentation and that monitoring letters are submitted to grantees within the 45-day requirement.

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. However, HUD will also use DRGR for the American Recovery and Reinvestment Act of 2009. Thus, at the request of the Recovery Act Transparency and Accountability Board, we issued an amended report to clarify the relationship between DRGR and the American Recovery and Reinvestment Act of 2009.

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 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
File Size: 1.14MB

Title: Mortgage-Backed Securities Program Document Review (Redacted Report)

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.

This report has been redacted due to the confidential nature of the issues. Full details of the issues are only available in the restricted distribution version.

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.

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 (Redacted Report)

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.

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.

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.

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.

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