OIG Internal Audit Reports Issued since 1995

Title: SecurityNational Mortgage Company Dallas, TX

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

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

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

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

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

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

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

Title: HUD Did Not Process MAP Applications within Established Processing Goals and the MAP Guide Is Outdated

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

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

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

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

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

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

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

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

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

Title: Review of HUD's Information Technology Security Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Reivew of HUD's Procurement Systems

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: The Procurement Office Did Not Maintain Complete Contract Files

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Review of HUD's Information Security Program

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

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

Title: HUD's Oversight of Evergreen Terrace

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Fully Implement the Active Partners Performance System

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Annual Evaluation of HUD's Information Security Program

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

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

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

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

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

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

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

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

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

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

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

Title: Contracts for Endorsement and Post-Endorsement Services

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

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

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

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

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

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

Title: Effectiveness of the Departmental Enforcement Center

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

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

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

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

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

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

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

Title: Welfare to Work Section 8 Voucher Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Public Housing Agency Development Activities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Officer Next Door and Teacher Next Door Programs

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

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

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

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

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

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

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

Title: Annual Evaluation of HUD's Information Security Program

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

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

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

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

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

We found deficiencies and weaknesses in controls:

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

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

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

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

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

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

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

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

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

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

Title: Inappropriate Home Ownership Center Instructions

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

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

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

Title: Office of Federal Housing Enterprise Oversight

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

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

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

Title: HUD Training Academy, Washington, DC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Inappropriate Home Ownership Center Instructions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We have completed a survey of the Office of Housing's use of financial statement assessments generated by HUD's Real Estate Assessment Center (REAC) on multifamily properties located in New England. The purpose of our review was to evaluate the usage of audited financial statements by multifamily housing staff in selected New England areas. Our work revealed that the Office of Housing needs more time to fully implement the use of REAC'S Financial Assessment Subsystem (FASS) in order to assess whether FASS is useful to Housing's objective of improving multifamily portfolios.

Issue Date: December 13, 2002
Audit Memorandum No: 2003-AO-0801
File Size: 174KB

Title: Controls Over Third Party Access to, and Disclosure and Use of Social Security Numbers

The Chairman of the House Ways and Means Subcommittee on Social Security asked the President's Council on Integrity and Efficiency to evaluate Federal agencies' control over third party access to, and disclosure and use of social security numbers (SSNs). To accomplish this, the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) and other participating OIGs were requested to select one program area and determine whether their agency:
* Made legal and informed disclosures of SSNs;
* Had appropriate controls over contractors' access to and use of SSNs;
* Had appropriate controls over other nongovernmental and noncontractor entities' access to and use of SSNs; and
* Had adequate controls over access to individuals' SSNs maintained in databases.

Issue Date: December 9, 2002
Audit Memorandum Report No.: 2003-FO-0001
File Size: 193KB

Title: Audit Memorandum - HUD's Energy Management and Conservation Program

We completed an audit of HUD's Energy Management and Conservation (EM&C) program as part of our responsibilities (42 USC, 8262) under the National Energy Conservation Policy Act (NECPA) of 1978 as amended by the Energy Policy Act of 1992 (the Act). The objectives were to determine: (1) HUD's compliance with the Act and other laws relating to energy conservation, and (2) whether HUD has management controls in place to ensure accuracy and reliability of energy consumption and cost data.

HUD generally complied with prescribed energy conservation laws, policies, and practices, and established adequate management controls to ensure the accuracy and reliability of energy consumption and cost data. However, HUD did not meet the 10 or the 20 percent energy consumption reduction goals for 1995 and 2000 respectively, as mandated by the Act. HUD identified a number of energy conservation measures and projects, but failed to consistently fund or determine whether the energy reduction measures would achieve the energy reduction goals mandated by the Act or Executive Order.

Issue Date: December 3, 2002
Audit Memorandum No.: 2003-DP-0802
File Size: 283KB

Title: Review of General Information Technology Controls at ACS

This memorandum provides the results of our limited review of the general controls over the information systems operated and maintained for Ginnie Mae by Affiliated Computer Services – Governmental Services, Inc. (ACS). Our review was made in response to a request from Ginnie Mae. This memorandum provides the results of our limited survey work of the general controls at ACS.

Our review found that security over certain server and application access controls can be improved. We also found that required semiannual testing of the disaster recovery process for one (the webserver) of the three major ACS contracted services was not being performed. We have made five recommendations to Ginnie Mae to improve internal controls in these areas

Issue Date: December 3, 2002
Audit Memorandum No.: 2003-PH-0801
File Size: 209KB

Title: Assessment of HUD's Progress in Implementing the Resource Estimation and Allocation Process (REAP) and Total Estimation and Allocation Process (REAP) and Total Estimation and Allocation Mechanism (TEAM) Components of its Human Resource Management System

We completed a review of the Department's progress in implementing the Resource Estimation and Allocation Process (REAP) and the Total Estimation and Allocation Mechanism (TEAM) components of its human resource management system. The Chief Financial Officer's (CFO) Office of Budget is responsible for the coordination and implementation of the system. Our primary objective was to assess the Department's progress in implementing REAP and TEAM, subsequent to the Office of Inspector General (OIG) September 2000 REAP review.

Generally, we found the Department has made significant progress in developing and implementing the key components of its human resource management system since September 2000. The Department completed the REAP studies in January 2002, began implementing the time reporting component of TEAM in the third quarter of fiscal year 2002, and anticipates the allocation module of TEAM will be implemented in the first quarter of fiscal year 2003. The Department now needs to develop a comprehensive strategic workforce plan that includes elements as to how the data from the REAP studies and TEAM system will be used to plan and allocate its human resources among its various operating components.

Title: AUDIT MEMORANDUM - Annual Evaluation of HUD's Information Security Program

We completed an audit of the Department of Housing and Urban Development's (HUD's) information security program and practices as required by the FY 2001 Defense Authorization Act (P.L. 106-398) Title X, subtitle G, "Government Information Security Reform (GISRA)." The Act requires that the Office of Inspector General (OIG) perform an annual independent evaluation of the Department's information system (IS) security program leading to a conclusion regarding its overall effectiveness. The purpose of the Act is to provide a comprehensive framework for establishing and ensuring the effectiveness of information system security programs, including the management, oversight, and controls over information resources that support Federal operations and assets.

Issue Date: October 28, 2002
Audit Memorandum No.: 2003-DE-1003
File Size 5.29 MB

Title: Congressionally Requested Audit of the June 1998, Memorandum of Understanding between HUD’s Office of Multifamily Housing and the Corporation for National Service

We completed an audit of the $2.4 million provided by HUD to the Corporation for National Service (Corporation), under a June 1998 Memorandum of Understanding. We performed the review at the direction of Congress. We wanted to know if VISTA members' activities, funded under the Memorandum of Understanding, were eligible under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). We reviewed 21 of the 53 VISTA projects supported by HUD funding. We identified that the Corporation approved VISTA projects with goals/objectives that did not comply with MAHRA or the HUD Memorandum of Understanding. In addition, we identified that four of the 21 projects provided ineligible assistance under MAHRA. We determined that the Corporation expended at least $57,916 to fund these ineligible activities. In addition, we could not determine the eligibility of the assisted HUD multifamily projects because the VISTA sponsors' quarterly reports lacked sufficient detail to make a determination. As a result, VISTA members were utilized to further the goals and objectives of the National Alliance of HUD Tenants. In addition, HUD cannot be sure that the projects assisted were eligible under MAHRA. The Corporation did not establish adequate management control to ensure only items eligible under MAHRA and the Memorandum of Understanding received assistance. In addition, the Corporation did not prepare or submit the required quarterly reports per the Memorandum of Understanding.

We did not identify lobbying activities by the VISTA members.

Our report contains two recommendations to address the issues identified in the report and strengthen management controls over future agreements between HUD and the Corporation.

In conducting the audit, we reviewed the Corporation's accounting records, and other documents supporting the expenditures of Section 514 funds. According to the Corporations records, HUD provided funding to 53 sponsoring organizations. The funding provided 262 VISTA members for 100 VISTA projects. We reviewed 21 of the 53 project sponsors' records (the sample represented 97 of the 262 VISTA members activities). Specifically, we reviewed the VISTA project sponsors' 1) applications, 2) Memorandum of Agreements, and 3) quarterly reports. We interviewed Corporation staff members and HUD staff responsible for the Section 514 funded VISTA member activities. Our audit scope did not include the process or method used by HUD to award the February 1995 Interagency Agreement or the June 1998 Memorandum of Understanding to the Corporation. We also reviewed the requirements in MAHRA, HUD's Memorandum of Understanding, the VISTA member Handbook, the Federal regulations applicable to the Corporation on lobbying, and HUD and the Office of Management and Budget's guidance on the establishment of management controls over program activities.

The audit covered the period June 12, 1998 through June 2002. We reviewed the $2.4 million provided by HUD, of the originally intended $3.0 million. Due to the funding shortfall, the Corporation used its own funds to continue funding VISTA members' activities after December 31, 2001. Therefore, our review includes activities funded in part with Corporation funds. We performed the fieldwork at the Corporation's Office located at 1201 New York Avenue, NW, Washington, District of Columbia during July 2002.

Issue Date: October 11, 2002
Audit Memorandum No.: 2003-AO-0001
File Size 410KB

Title: Review of the Financial Activities of the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century

At the request of the Senate Committee on Banking, Housing, and Urban Affairs and House Committee on Financial Services, we completed an audit of the financial activities of the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century (Commission). The objective of our audit was to determine if the Commission expended funds in compliance with Federal laws. To accomplish this objective, we examined financial records, contracts, invoices, travel, and personnel records; interviewed Commissioners and Commission staff; and reviewed laws applicable to the Commission. We are addressing this report to the CFO's office as a means of conveying our audit results and recommendations to the Administrator of General Services under the Federal Advisory Committee Act. This report contains no recommendations to HUD nor is HUD required to follow up on corrective actions taken.

Issue Date: September 30, 2002
Audit Memorandum No.: 2002-SE-0803
File Size 954KB

Title: Review of HUD's approval of an insured mortgage for a Section 232 Project J.A.M. Davis Incorporated, doing business as Loganhurst Health Care, Spokane, Washington

We reviewed the Seattle Office of Housing's approval of an insured mortgage for the Loganhurst Health Care residential facility to determine if the Office of Housing followed HUD's mortgage credit requirements and prudent underwriting practices when reviewing and approving the application for insurance. The review found that the Seattle Office of Housing approved insurance for a $3,995,000 loan for a residential care facility that was financially unstable. This occurred because HUD staff did not fully follow the applicable HUD handbook requirements when it processed and approved the loan. The owner subsequently diverted over $177,000 in project operating funds to pay back loans and other non-project costs that were incurred in order to obtain approval for the loan, and the property soon went into default and foreclosure. The Seattle Multifamily Hub appears to have implemented adequate controls that should prevent a reoccurrence of this situation.

Issue Date: September 27, 2002
Audit Report No.: 2002-DP-0002
File Size 578KB

Title: Audit Memorandum Report - Review of Departmental IT Security Plans

We have completed a review of security plans prepared for HUD's mission critical systems. This review was made in conjunction with the OIG's FY 2001 Financial Statement Audit and as part of the OIG's annual independent evaluation of the overall effectiveness of HUD's security program as required by the Government Information and Security Reform Act (GISRA). The objective was to determine whether security plans prepared for HUD's critical information systems were compliant with OMB Circular A-130 and consistent with National Institute of Standards Technology Publication (NIST) 800-18.

Our review found that the security plans for mission critical systems did not meet the requirements or guidelines of either OMB Circular A-130 or NIST Publication 800-18. Also, HUD has not updated the Department's information security policies and procedures for preparing security plans to conform to current OMB Circular A-130 and NIST Publication 800-18 guidelines. Additionally, the Office of the Chief Information Officer (OCIO) was not coordinating and sharing with the responsible Program Area Officials the results of a contractor's review of the Department's security plans for appropriate corrective action. Without adequate security plans and proper coordination between the OCIO and the Program Areas, the Department is at risk that critical information systems will not be adequately protected against waste, loss, and unauthorized use.

Issue Date: September 25, 2002
Audit Report No.: 2002-SE-0001
File Size 486KB

Title: Follow up of Down Payment Assistance Programs Operated by Private Nonprofit Entities

Based on a request from the General Deputy Assistant Secretary for Housing, we reviewed a statistical sample of 1,125 FHA case files to determine the percentage of borrowers receiving down payment assistance from nonprofit corporations, and to find out if the DAP-assisted loans are more likely to default than loans without DAP assistance. For these types of loans, the seller or builder reimburses the nonprofit organization for the assistance. The audit found that the use of DAP-assisted loans has increased and is now widespread. In addition, DAP-assisted loans have a greater tendency to default than unassisted FHA loans. The review also found that information in HUD's Single Family Data Warehouse is inaccurate, and that stronger controls are needed to ensure that lenders enter correct information so that HUD can accurately evaluate the performance of DAP-assisted loans and the associated risk to the FHA fund. We recommended that HUD consider implementing a rule prohibiting seller-derived down payment assistance loans, and strengthen controls to improve the accuracy of the Single Family Data Warehouse.

Issue Date: July 31, 2002
Audit Memorandum No.: 2002-SF-0801
File Size 1,417KB

Title: HOME Investment Partnerships Program

We completed an internal audit survey of the HOME Investment Partnerships Program (HOME). The overall objective of the review was to evaluate the susceptibility of HOME to unnecessary risk of waste, fraud or abuse, but the survey work primarily concentrated on overall program monitoring and the Community Housing Development Organization (CHDO) approval process. Some of the rationale for the review evolved from our prior audit of Nonprofit Participation in HUD Single Family Programs. We were concerned that nonprofit organizations precluded from participation in Single Family programs nevertheless might be participating in HOME. Whereas HUD has established procedures intended to limit participation in Single Family programs only to qualified, capable, experienced nonprofit organizations and HUD actually approves (or disapproves) the Single Family nonprofits, CHDO nonprofits initially need not have comparable experience or qualifications and CHDOs are approved by Participating Jurisdictions (PJs), not by HUD. We were also concerned that problems we found with nonprofits participating in the Single Family programs could extend to CHDO nonprofits participating in HOME. Specifically, we were concerned that (1) CHDO nonprofits could be controlled by profit motivated groups or individuals, (2) property resale profit margins could be excessive, and (3) construction or rehabilitation work might not meet minimum standards.

Our audit survey did identify some areas of apparent risk and several deviations from program requirements including: (1) monitoring weaknesses at both the HUD field office level and at the PJ level, (2) administrative weaknesses at both the PJ and sub-grantee or CHDO level, and (3) actual or apparent conflicts of interest. For the most part, our concerns that HOME might be experiencing problems with CHDOs analogous to those we found for Single Family nonprofits were alleviated as a result of the survey, and we do not believe additional internal audit coverage is warranted at this time.

Issue Date: July 31, 2002
Audit Report No.: 2002-KC-0002
File Size 274KB

Title: Nationwide Survey HUD's Office of Housing Section 232 Nursing Home Program

We have completed a survey of the Office of Housing's administration of HUD's Section 232 Nursing Home Program. We initiated the survey based on previous OIG audits of insured nursing homes that indentified numerous violations HUD's regulatory agreements. Our objective was to determine if HUD had adquate controls in place to identify and correct significant regulatory agreement violations. Although HUD's internal programs data did contain evidence of regulatory agreement violations, we found HUD does not have adquate controls in place to ensure all violations are identified. In addition, the nursing home annual audited financial statements submitted to the Real Estate Assessment Center's (REAC) Financial Assessment Subsystem (FASS) contain numerous examples of regulatory agreement violations; however, the system does not include audited financial statements for leased nursing homes. We believe that these significant control weaknesses have contributed to a high number of defaults and assignments of Section 232 projects.

Issue Date: July 12, 2002
Audit Report No.: 2002-AO-0001
File Size 978KB

Title: the Grants Management Center’s Operations

The Office of Public and Indian Housing created the Grants Management Center (GMC) to streamline and increase the efficiency of the administrative functions pertaining to it's categorical and formula grant programs. In FY 2000 and 2001, GMC processed grant awards for categorical programs totaling approximately $1.2 billion and formula programs for $12.3 billion. These grants included the categorical grants of the Housing Choice Voucher program and the Resident Opportunities and Self Sufficiency Program (ROSS), as well as the formula grants for the Capital and Operating Funds.

Our audit of GMC’s FY 2000 and 2001 operations showed that staff did not comply with established procedures when rating and ranking ROSS Resident Services Delivery Models applications. This led to scores that were arithmetically incorrect and unsubstantiated by reviewers’ written comments. As a result, GMC provided the decision-makers a list of eligible applicants based on unsubstantiated scores.

While consolidation has streamlined grant-processing activities, GMC’s management did not establish baseline/benchmark information and quantifiable indicators that directly relate to its operations and regularly compare these indicators against performance goals. Consequently, GMC management could not demonstrate that grant administrative functions are carried out more efficiently.

Issue Date: July 11, 2002
Audit Report No.: 2002-DP-0001

Title: HUD Network Security Assessment (Report Not Available to Public)

We have completed a security assessment of HUD's networked systems. A network security assessment is an independent examination of the network architecture and environment using specialized tools to confirm compliance with established controls, policies, and operational procedures. The objective of our assessment was to determine whether security controls and practices provide adequate protection against unauthorized access to HUD's critical and sensitive systems. We concluded from our assessment that the Office of Information Technology has implemented controls to strengthen HUD's network security. However, there are a number of vulnerabilities in the configuration and control of network resources. Our report presents detailed results of our assessment and appropriate recommendations for corrective action that will improve HUD's overall security posture when applied consistently throughout its networked environment. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.

Issue Date: June 10, 2002
Audit Memorandum No.: 2002-PH-0002
File Size: 290KB

Title: Single Family Sales to Owner-Occupant Purchasers

Under the Single Family Real Estate Owned (REO) owner-occupant sale initiative, HUD established an initial 10-day bidding period only open to individuals who certify that they will occupy a property for 12 months and have not purchased a HUD property within 2 years. However, we found that 29 percent of the purchasers did not comply with these requirements. Specifically, we statistically estimate purchasers bought 41,547 single properties, valued at $2.9 billion, that did not comply with residency requirements. Further, 1,550 purchasers bought 1,851 properties, valued at $107.3 million, in violation of purchase frequency limitations. The abuses occurred because HUD management was not aware of the magnitude of the problem, the HOCs did not specifically monitor owner-occupant sales due to other priorities and limited resources, and HUD’s SAMS did not provide sufficient information to enable the HOCs and Management and Marketing (M&M) contractors to easily prescreen prospective buyers. These abuses likely prevented a number of prospective owner-occupants from acquiring homes, which undermined the initiative’s intent to increase home ownership.

Issue Date: May 31, 2002
Audit Memorandum No.: 2002-FW-0801
File Size: 130KB

Title: Referral of Annual Audited Financial Statements Completed by George Baugh III & Company

We performed a limited review concerning unreported noncompliance issues in annual audited financial statements completed by George Baugh III & Co. Our limited review showed only one of the allegations was valid: the firm did not disclose Sunlight Manor's late residual receipts deposit in the project's 2000 audited financial statements. Since our review of the allegations did not disclose significant instances of noncompliance by George Baugh III & Co., we will not perform a quality control review of the firm at this time. However, HUD should require the firm to correct the financial statements of the Sunlight Manor.

Issue Date: May 29, 2002
Audit Memorandum No.: 2002-KC-0801
File Size: 171KB

Title: Region 7 Officer/Teacher Next Door Occupancy Violations

We completed occupancy evaluations of participants in the Officer/Teacher Next Door program in Region 7. Our objective was to determine whether program participants violated the 3-year occupancy requirements and to refer those violations for possible prosecution by Assistant United States Attorneys or administrative action by HUD. We found that all program participants were occupying the residence they had acquired under the Officer/Teacher Next Door program.

Issue Date: May 23, 2002
Audit Report No.: 2002-PH-0001
File Size: 932KB

Title: Multi-location Review of HUD's Utilization of the Public Housing Assessment System

We completed a multi-location review to evaluate HUD’s Utilization of the Public Housing Assessment System (PHAS). Altogether, we reviewed related operations at 10 Public and Indian Housing Hubs, Program and Community Service Centers, and completed housing unit inspections at 32 Public Housing Authorities.

Generally, we found HUD staff has been using the PHAS scoring results in monitoring its Authority portfolio and in assisting Authorities to improve failing or low scoring components of the PHAS score. However, the Conference Report 106-988, which restricted HUD from taking any adverse action against an Authority that receives a failing PHAS score, hindered HUD’s ability to fully implement the PHAS and thus limited its effectiveness in improving Authority performance, especially for the Authorities with the greatest need. Specifically, the Conference Report did not permit HUD to forward its worst performers (troubled) to one of two Troubled Agency Recovery Centers, where appropriate intervention strategies are to be developed and implemented to help troubled agencies perform at an acceptable level. Because of this restriction, Local HUD Offices have been using their limited resources to provide targeted technical assistance to these Authorities in addressing problem areas identified by the relevant PHAS indicators, using a less comprehensive approach than was provided for under the PHAS regulations. Meanwhile, the Troubled Agency Recovery Center’s role and functions in assisting troubled agencies has continued to erode with the centers now serving only 18 troubled and 29 non-troubled Authorities.

Further, not related to the restrictions imposed by the Conference Report, we found that HUD did not always designate Authorities with failing Management Operations scores as troubled and/or forward them to the Troubled Agency Recovery Centers in a timely manner as was required under HUD requirements and existing protocol; and was not providing assistance to Authorities that fail the Resident Service and Satisfaction indicator of PHAS.

Lastly, we found Authorities were either not correcting or not correcting in a timely manner Life Threatening Exigent Health and Safety (EH&S) violations that were identified from REAC’s physical inspections. Generally, the monitoring methods used by the Local HUD Offices to ensure Authorities corrected identified EH&S violations within 24 hours were inconsistent and not effective.

We made a number of recommendations to improve HUD’s use of PHAS in monitoring Public Housing Authorities with failing PHAS indicators.

Issue Date: May 16, 2002
Audit Memorandum No.: 2002-SE-0802
File Size: 114KB

Title: Survey Results on the Foreclosure Sale of the Rose Pointe Retirement Community by the Fort Worth Property Disposition Center, Fort Worth, Texas

We completed a survey of the foreclosure sale of the Rose Pointe Retirement Community by the Fort Worth Property Disposition Center in which we addressed allegations that the foreclosure sales price was too low. Our objective was to determine if the Fort Worth Property Disposition Center (Center) foreclosure sale of Rose Pointe Retirement Community was effective, efficient, and economical. The Center generally carried out the foreclosure sale of Rose Pointe Retirement Community effectively, efficiently, and economically. The Center considered the methods of disposal available, and determined the foreclosure sales amount in accordance with HUD requirements. Although the Center did not meet the goal of completing the foreclosure in 200 days, HUD has no statutory or regulatory requirements for the time to complete a foreclosure.

Issue Date: May 1, 2002
Audit Memorandum No.: 2002-DP-0801
File Size: 872KB

Title: Audit Memorandum on the Review of HUD's Multi-Year Information Technology (IT) Plan

This memorandum is in response to a congressional request that the HUD Office of Inspector General determine whether the HUD's Multi-Year IT Plan (FY01-FY03) addresses previously reported computer system weaknesses and whether the most critical weaknesses have been assigned sufficient funding priority. We found that management was well aware of the weaknesses that required corrective action. However, the Department sometimes initiated system projects before the prerequisite Enterprise Architecture Plan, business processes, and system functionality were fully identified. In addition, we found the Plan did not fully address OIG and GAO open report recommendations to correct long-standing material weaknesses in the computer systems supporting major HUD activities. The weaknesses inadequately addressed included the Department's financial systems, Section 8 rental subsidies, FHA business processes, and FHA funds control. Our comments on those recommended system projects that were excluded from the Plan are provided under the "Results of Review" section. Also, we have included comments on two large projects listed in the Plan that we believe can be deferred until later. Although HUD's submission is called a Multi-Year IT Plan, we believe that strategic resource planning should entail budget planning for the succeeding five-year period.

Issue Date: April 23, 2002
Audit Memorandum No.: 2002-SE-0801
File Size: 238KB

Title: Audit Memorandum on the Staffing Resources of the Real Estate Assessment Center's Tenant Assessment Subsystem, Seattle Technical Assistance Center, Seattle, Washington

We performed an audit of the Real Estate Assessment Center's Seattle Technical Assistance Center (Center) to assess the validity of a complaint alleging the Center staff does not have enough work to do, and the work performed by Analysts in the Center is not commensurate with their grade level. Our audit results found that the allegations were generally valid. The Real Estate Assessment Center (REAC) has not been able to provide an adequate number of suitable tasks and activities for the Center staff to carry out, the staff does not have enough work, and the work the Center Analysts perform is not commensurate with their grade level. Consequently, staff resources were underutilized, and opportunities for employee misconduct existed. Also, there are indications that similar problems exist at the Chicago Center. We are recommending that the Department develop and implement a plan to fully utilize the Center employees with meaningful work commensurate with their grade level, and determine if similar conditions exist at the Chicago Technical Assistance Center and take appropriate corrective action.

Issue Date: April 5, 2002
Audit Memorandum No.: 2002-AO-0801
File Size: 603KB

Title: Administration of Bridges over Troubled Waters Cooperative International Faith Community Information and Services Clearinghouse and Training Center, Howard University School of Divinity, Washington, DC

As a part of our plan to review the Office of Public and Indian Housing's award and administration of cooperative agreements, we reviewed Bridges Over Troubled Waters (BOTW), a 2-year ($500,000) cooperative agreement awarded to the International Faith Community Information and Services Clearinghouse and Training Center, Howard University School of Divinity (ISC). The main objective of our audit was to determine whether the Community Safety and Conservation Division (CSCD) complied with Departmental policies and procedures in administering BOTW. In order to achieve this objective, we also performed procedures to determine whether ISC conformed to the terms of the agreement and whether the BOTW program achieved its intended results. We found that: (1) the GTR did not adequately monitor ISC's compliance with the requirements of the agreement. As a result, performance reports showing vital information such as actual accomplishments were missing and were not used to approve drawdowns for ISC; (2) ISC did not adequately document its use of the funds or maintain appropriate supporting documentation; and (3) ISC's claim that BOTW achieved its goal was not supported by objective evidence that could be used to measure BOTW's success.

Issue Date: March 22, 2002
Audit Memorandum No.: 2002-DE-0801
File Size: 6956KB

Title: Alleged Violations of the Antideficiency Act and the HUD Reform Act by the Office of Multifamily Housing Assistance Restructuring (OMHAR)

We concluded that HUD did not violate the Antideficiency Act in awarding the Section 514 Technical Assistance Grants for fiscal years 1998 through 2001. However, HUD did not fully comply with the HUD Reform Act. While HUD officials competitively awarded the grants, as required by the HUD Reform Act, they did not publish the required notification in the Federal Register identifying the grantees and award amounts.

Weaknesses in HUD’s management controls resulted in errors (The General Accounting Office defines an error as an unintentional misstatement of financial information) in the award of the Section 514 Technical Assistance Grants. These errors, as well as management decisions that unnecessarily limited the period of funds availability, led to the appearance of potential violations of the Antideficiency Act. In fact, HUD did not obligate or expend more Section 514 Technical Assistance funds than were authorized by Statute and made available for fiscal years 1998 through 2001. However, as a result of misunderstandings between various HUD offices regarding the availability of funds over time, HUD did not comply with the Bona-fide Needs Statute, which provides that the balance of an appropriation or fund is available only for payment of expenses properly incurred during the period of availability.

The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) included language authorizing the Secretary to provide up to $10 million annually for technical assistance grants to tenant organizations. The MAHRA Statute does not include language specifically restricting the availability of the funds provided for technical assistance funds to one year. HUD’s Office of the Chief Financial Officer, through the apportionment and allotment process, designated Housing Certificate no year funds as the source of funds for the Section 514 Technical Assistance Grants, but limited the availability of these funds to one year. In effect, HUD funds that were available for use without time restrictions were, after HUD’s action, available for only one year. This situation created confusion among the various HUD Offices regarding the availability of funds by fiscal year for carryover and future use and contributed to the violation of the Bona-fide Needs Statute.

Factors that contributed to the appearance of violations of the Antideficiency Act included the following. In fiscal year 1998 HUD did not record or account for the commitment of Section 514 Technical Assistance Grant awards at the point of commitment or obligation in accordance with its accounting policy and the General Accounting Office’s Principles of Federal Appropriations Law. As a result, fiscal year 1998 funds allocated for Section 514 Technical Assistance were reapportioned through OMB at fiscal year end. Therefore, for budgetary purposes these fiscal year 1998 funds were no longer available for future expenditure even though HUD made a definite commitment for the future use of these funds. In fiscal year 2001 Section 514 Technical Assistance Grant agreements were modified prior to grantee acceptance to clarify that the initial funding obligated for the multiyear grant is less than the total grant amount for the three year period and is based on availability of funds at the time of award. Nevertheless, the Chief Financial Officer’s (CFO) Office of Budget took the position that the total award amount as shown on the grant agreement should have been obligated. This created confusion regarding the actual grant award obligation amounts for fiscal year 2001 and resulted in the CFO’s Director of Budget withdrawing OMHAR as a legally qualified allowance holder for any funds appropriated to HUD by Congress.

These processes clearly caused the misstatement of actual or valid obligations in fiscal years 1998 and 1999, and caused confusion regarding the amount of fiscal year 2001 obligations, but there was no violation of the Antideficiency Act. At the point of obligation when HUD made definite commitments to make future expenditures, Section 514 Technical Assistance funds were available to cover the obligations incurred.

Issue Date: March 13, 2002
Audit Memorandum No.: 2002-FO-0004
File Size: 348KB

Title: Independent Accountant's Report on the Department of Housing and Urban Development's Fiscal Year 2001 Detail Accounting Submission Report

In accordance with The Office of National Drug Control Policy (ONDCP)Reauthorization Act of 1998 and Office of National Drug Control Policy Circular: Annual Accounting of Drug Control Funds, dated December 17,1999, the accompanying report presents the results of our attestation review of the Department of Housing and Urban Development's Submission of Detailed Accounting of FY 2001 Drug Control Funds, dated January 17, 2002,and revised February 14, 2002. Our review focused on assessing the Detailed Accounting prepared by the Offices of Housing and Public and Indian Housing, prior year actual obligations, the accompanying disclosures, the financial systems and data supporting the drug methodologies, the estimation methods used, the completeness of the data, the application of the methodologies, and the assertions made regarding the obligation data presented in the Resource Summaries using the criteria indicated above. We were precluded by independence standards from reviewing the Detailed Accounting prepared by the Office Inspector General, and the Office of Inspector General has been given the authority to submit its Detailed Accounting report separately from HUD. Based on the review, nothing came to our attention that caused us to believe that the HUD's submission is not presented in all material respects with ONDCP's policy and circular.

Issue Date: March 12, 2002
Audit Memorandum No.: 2002-DE-0802
File Size: 164KB

Title: Rocky Mountain District Review of the Officer/Teacher Next Door Program

We completed our review of participants in the Officer/Teacher Next Door program. Our objective was to determine whether program participants violated the 3-year occupancy requirements and to refer those violations for possible prosecution by Assistant United States Attorneys or administrative action by HUD. We reviewed the occupancy status of homebuyers who participated in the program during the period of October 1998 to October 2001.

Issue Date: February 28, 2002
Audit Report No.: 2002-DE-0001
File Size: 1326KB

Title: Follow-up Nationwide Review of HUD's Loss Mitigation Program

We performed a nationwide follow-up audit of HUD's Single Family Loss Mitigation Program to evaluate whether the program is effectively and efficiently achieving HUD's goals for increased home retention and minimized costs to the insurance fund. We first audited this program in 1999. The follow-up audit was planned in the Office of Inspector General's fiscal year 2001 annual audit plan. Our audit work included reviews at six large and two midsize servicing mortgagees. We also reviewed the private contractor servicing partial claim notes and the Office of Housing, Single Family Division, which includes the National Servicing Center. The Department has exceeded its goals to increase the usage of loss mitigation strategies, thereby reducing losses to the FHA insurance fund with foreclosure avoidance. Although HUD has expanded the usage of the loss mitigation on FHA-insured loans, additional work is needed to improve the administration of the program. We identified four issues that are keeping the loss mitigation program from reaching its full potential and achieving HUD's goals to help borrowers retain homeownership while mitigating the economic impact to the FHA insurance fund.

Issue Date: February 27, 2002
Audit Report No.: 2002-FO-0003
File Size: 3814KB

Title: Audit of U.S. Department of Housing and Urban Development (HUD) Financial Statements for Fiscal Years 2001 and 2000

This report presents the results of OIG’s audit of the Department of Housing and Urban Development’s (HUD) financial statements for the fiscal years ended September 30, 2001 and 2000. In OIG’s opinion, the financial statements present fairly, in all material respects, HUD’s financial position as of September 30, 2001 and 2000, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended. The report identifies (a) 5 material weakness and 10 reportable conditions on internal controls and (b) 2 instances of non-compliance with applicable laws and regulations. The report discusses each of these conditions in detail, provides an assessment of actions taken by HUD to mitigate them, and makes recommendations for corrective actions. During the course of the audit, OIG alsoidentified several matters that are not material to the financial statements and are being separately communicated to HUD management.

Issue Date: February 25, 2002
Audit Report No.: 2002-NY-0001
File Size: 467KB

Nationwide Audit - Asset Control Area Program Single Family Housing

We performed a nationwide audit of the Asset Control Area Program to assess the effectiveness of the Program in meeting its objective of expanded homeownership opportunities in revitalization areas. Specifically, our audit objectives were to determine whether: (1) eligible single-family properties are being made available to local governments and nonprofit entities, (2) homeownership opportunities are being expanded, (3) neighborhoods are being revitalized as a result of improvements to the housing stock, (4) HUD has established adequate management controls over the Asset Control Area Program, and (5) the Asset Control Area Program is an efficient use of HUD resources.

Issue Date: February 22, 2002
Audit Report No.: 2002-FO-0002
File Size: 3159KB

Title: Audit of the Federal Housing Administration’s Financial Statements for Fiscal Years 2001 and 2000

This report presents the results of KPMG LLP’s (KPMG) audit of the Federal Housing Administration’s (FHA) financial statements for the years ended September 30, 2001 and 2000. In KPMG’s opinion, the financial statements present fairly, in all material respects, FHA’s financial position as of September 30, 2001 and 2000, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended. The report identifies two material weakness and four reportable conditions on internal control, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. During the course of the audit, KPMG also identified several matters that are not material to the financial statements and are being separately communicated to FHA management.

Issue Date: February 20, 2002
Audit Report No.: 2002-FO-0001