OIG Internal Audit Reports Issued since 1995

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Fiscal Year 2010

Issue Date: November 18, 2009
Audit Report No.: 2010-DP-0802

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

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

Title: Additional Details to Supplement Our Report on HUD's Fiscal Years 2009 and 2008 Financial Statements

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 2009 and 2008 Financial Statements, which is included in HUD's Fiscal Year 2009 Performance and Accountability Report.

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

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

Issue Date: November 13, 2009
Audit Report No. 2010-FO-0002

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

This report presents the results of Urbach Kahn and Werlin LLP (UKW) audit of the fiscal year 2009 and 2008 financial statements of the Federal Housing Administration (FHA). The report on FHA’s financial statements, dated November 9, 2009 includes an unqualified opinion on FHA’s financial statements. The report contains four significant deficiencies in FHA’s internal controls and one reportable instance of noncompliance with laws and regulations. The report contains 15 new recommendations. Additionally, it discusses the issues/conditions in detail, provides an assessment of management’s responses to the report, and makes recommendations for corrective actions. UKW also noted other matters involving internal control and its operation that are not material to the financial statements and are being communicated separately to FHA's management.

Issue Date: November 12, 2009
Audit Report No. 2010-LA-0002

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

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

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

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

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

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

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

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

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

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

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

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

This report presents the results of Carmichael, Brasher, Tuvell and Company's (CBTC) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the fiscal years ended September 30, 2009 and 2008. In CBTC's opinion, the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 2009 and September 30, 2008 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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

Issue Date: October 30, 2009
Audit Memorandum No.: 2010-DP-0801
File Size: 361.27KB

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's oversight of the Federal Housing Administration (FHA)-insured home equity conversion mortgages (HECM) program. We initiated the audit as part of the activities in our 2008 annual audit plan. Our audit objective was to determine whether HUD had adequate oversight of the underwriting of HECM loans. This is the second of two audit reports regarding HUD's oversight of the program.

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

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

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

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

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

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

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

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

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

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

We have completed an audit of the security of the U.S. Department of Housing and Urban Development's (HUD) Web applications. We evaluated security measures in place that protect HUD information, scanned identified Web applications, and identified vulnerabilities and suspect configurations that place sensitive information at risk. We conducted the audit as a component of the testing of general and technical controls for information systems in connection with (1) an audit of HUD's consolidated financial statements and (2) the annual evaluation of HUD's information system security program and practices required by the Federal Information Security Management Act of 2002. Security controls implemented on HUD's Web applications were inadequate. We identified security configuration and technical control deficiencies within HUD's security controls. The OIG has determined that the contents of this report would not be appropriate for public disclosure; therefore, we have limited its distribution to selected HUD officials.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Review of American Recovery and Reinvestment Act Formula Allocations

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

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

There were no recommendations made in this report.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As part of the our plan to review the Neighborhood Stabilization Program (program), we reviewed whether the U. S. Department of Housing and Urban Development's (HUD) Disaster Recovery Grant Reporting system (DRGR) can collect program data at the level of detail necessary to adequately monitor the program. We limited the review to the program established by the Housing and Economic Recovery Act of 2008. However, HUD will also use DRGR for the American Recovery and Reinvestment Act of 2009. Thus, at the request of the Recovery Act Transparency and Accountability Board, we issued an amended report to clarify the relationship between DRGR and the American Recovery and Reinvestment Act of 2009.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Issue Date: April 15, 2009
Audit Report No.: 2009-FO-0004
File Size: 681.02KB

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

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

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

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

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

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

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

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

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

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

Title: NAHASDA's Program Income from 1937 Act Properties

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

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

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

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

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

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

HUD's receiver did not ensure that the Authority

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Review of Single-Family Partial Claims Collection Process

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Corrective Action Verification Opelika Housing Authority Public Housing Programs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Specifically, HUD

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Overpayments in the Housing Choice Voucher Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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