Internal Audit Reports Issued by the
Office of the Inspector General
1995-2007

Calendar Year 2007

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

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

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

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

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

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

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

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

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

Title: Overpayments in the Housing Choice Voucher Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Security National Mortgage Company Dallas, TX

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Review of HUD's Information Technology Security Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Reivew of HUD's Procurement Systems

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: The Procurement Office Did Not Maintain Complete Contract Files

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Review of HUD's Information Security Program

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

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

Title: HUD's Oversight of Evergreen Terrace

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Fully Implement the Active Partners Performance System

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Annual Evaluation of HUD's Information Security Program

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

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

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

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

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

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

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

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

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

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

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

Title: Contracts for Endorsement and Post-Endorsement Services

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

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

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

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

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

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

Title: Effectiveness of the Departmental Enforcement Center

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

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

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

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

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

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

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

Title: Welfare to Work Section 8 Voucher Program

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Public Housing Agency Development Activities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Officer Next Door and Teacher Next Door Programs

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

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

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

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

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

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

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

Title: Annual Evaluation of HUD's Information Security Program

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

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

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

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

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

We found deficiencies and weaknesses in controls:

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

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

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

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

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

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

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

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

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

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

Title: Inappropriate Home Ownership Center Instructions

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

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

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

Title: Office of Federal Housing Enterprise Oversight

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

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

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

Title: HUD Training Academy, Washington, DC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Inappropriate Home Ownership Center Instructions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: Review of General Information Technology Controls at ACS

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

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

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

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

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

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

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

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

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

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

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

We did not identify lobbying activities by the VISTA members.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Title: HOME Investment Partnerships Program

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

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

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

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

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

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

Title: the Grants Management Center's Operations

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

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

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

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

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

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

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

Title: Single Family Sales to Owner-Occupant Purchasers

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

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

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

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

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

Title: Region 7 Officer/Teacher Next Door Occupancy Violations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Nationwide Audit - Asset Control Area Program Single Family Housing

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

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

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

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

Issue Date: February 20, 2002
Audit Report No.: 2002-FO-0001
File Size: 525KB

Title: Government National Mortgage Association Audit of Financial Statements Fiscal Years 2001 and 2000

This report presents the results of KPMG LLP's (KPMG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the years ended September 30, 2001 and 2000. In KPMG's opinion, the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 2001 and 2000 and results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. In addition to KPMG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions with Ginnie Mae's internal controls, or material instances of non-compliance with laws and regulations. KPMG noted other matters involving internal control and its operation that are not material to the financial statements and are being reported separately to Ginnie Mae management.

Issue Date: November 13, 2001
Audit Report No.: 2002-KC-0001
File Size: 682KB

Title: Oversight of the Audit Resolution Process Office of the Chief Financial Officer

We have completed an audit of the Chief Financial Officer's (CFO's) controls over the audit resolution process. Our overall audit objective was to evaluate whether HUD's audit resolution practices and procedures ensure that closure actions for completed Office of Inspector General (OIG) audit recommendations are supported, effectively implemented, and properly documented. Additionally, we determined whether HUD staff adhered to policies and procedures. We determined the oversight of the audit resolution process by the CFO's office has improved markedly since the previous OIG audit in 1996. We found no examples of abuse of the recommendation closure process, as in the audit issued in September 1996, nor did we find significant errors by the current Audit Liaison Officers in our current review of the audit resolution process. However, we found some areas where procedures/controls can be improved to ensure that agreed-upon recommendations are supported and properly documented when closed. These areas are summarized below and detailed in the findings section of the report.

Issue Date: November 5, 2001
Audit Report No.: 2002-SF-0001
File Size: 3,236KB

Title: Nonprofit Participation in HUD Single Family Programs

We have completed an audit of nonprofit organizations' participation in FHA insured single family programs. The primary objectives of our review were to determine whether (1) current approval and monitoring policies, procedures, and guidelines are adequate to ensure that nonprofit organizations participating in the discount sales program are legitimate, independent organizations; (2) financial benefits resulting from discounted sales prices are passed on to low and moderate income homebuyers; (3) revitalization areas meet current requirements; and (4) properties sold at 30 percent discounts were actually located in revitalization areas. The primary emphasis of our review was on HUD's discount sales program for nonprofit organizations and governmental agencies. However, problems noted in the approval and monitoring process related to the discount sales program are also applicable to nonprofit organizations' participation in other FHA single family programs. The audit disclosed serious problems with HUD's discount sales program which brings into question the viability of the program.

Issue Date: September 28, 2001
Audit Report No.: 2001-DP-0004
File Size: 6,708KB

Title: Real Estate Assessment Center (REAC) Systems Development and Security

We have completed an audit of HUD's system development efforts for the Real Estate Assessment Center (REAC). The objectives of our audit were to review the efficiency and effectiveness of system development and security operations including: (1) procurement of development contractor services, (2) project management and monitoring, and (3) physical and software security controls of existing systems. Our audit found that both efficiency and effectiveness of the system development process have to be improved. The procedures for procuring contractual services for system development do not ensure that the best value is being obtained. A potential of $1.16 million in maximum savings was possible if the best qualified and lower cost contractor was fully utilized. REAC's project management of the system development efforts also needed improvement. As a result, some systems did not meet users needs and additional requests for project funding were necessary. Controls over security, including physical access to the REAC offices, personnel and contractor background investigations, and software access and integrity controls need to be increased.

Issue Date: September 28, 2001
Audit Report No.: 2001-DP-0003
File Size: 535KB

Title: Audit Report of the Real Estate Management System (REMS)

The Real Estate Management System (REMS) was designed to address weaknesses in disparate and decentralized systems used to manage and value HUD's vast multifamily housing portfolio. In the past, Multifamily Housing (MFH) servicing sites and HUBs relied on a collection of local databases and the Field Office Multifamily National System to track their individual property portfolios. However, these systems were not integrated and the data available was unreliable. Information in REMS is a critical asset and necessary for supporting MFH's overall program mission. Developed and implemented in FY 1998, REMS reportedly enabled the Department to successfully value and manage its vast multifamily housing portfolio using one system for the first time. We reviewed the REMS to determine whether: (1) the system has adequate controls to ensure management can rely on REMS data, and (2) information is adequately protected against loss and/or error. During our audit, we determined that although REMS is a significant improvement over past MFH system development efforts, application controls need strengthening. Specifically, we found: (1) incomplete or erroneous data in REMS; (2) users do not utilize the system consistently or to its fullest potential; and (3) data is at risk of being lost or inaccessible due to inadequate change control procedures. To correct these deficiencies and to prevent reoccurrence, MFH should: (1) implement automated input controls and perform more frequent data quality reviews; (2) document operational procedures and provide end users with adequate training; and (3) formalize REMS change control test procedures. Our report includes specific recommendations to the Deputy Assistant Secretary for Multifamily. However, we expect MFH to take the lead to ensure that all program areas using the REMS work together to strengthen management controls.

Issue Date: September 28, 2001
Audit Memorandum No.: 2001-DE-0801
File Size: 192KB

Title: Denver Homeownership Center, Review, Approval and Monitoring of Nonprofit Organizations' Participation in FHA Single Family Insurance Programs

We reviewed the Denver Homeownership Center's procedures and controls over the review, approval, and monitoring processes of nonprofit organizations participation in FHA Single Family Insurance Programs. The Denver Homeownership Center has established various procedures and controls to carryout its' management and oversight of nonprofits and their Affordable Housing Programs. We found that the Denver Homeownership Center needs to modify these procedures and controls in order to improve its oversight activities of the nonprofits.

Issue Date: September 27, 2001
Audit Memorandum No.: 2001-HQ-0801
File Size: 114KB

Title: Review of HUD's Procedures for Notifying Internal Revenue Service of Forclosures

We completed a review of the Department of Housing and Urban Development's (HUD) procedures for notifying the Internal Revenue Service (IRS) of multifamily mortgage foreclosures. HUD did not properly report debt forgiven at foreclosure to the IRS. This reportable event may result in a taxable event to the property owners. HUD needs to improve the guidance and oversight of the contractor performing this function.

Issue Date: September 21, 2001
Audit Memorandum No.: 2001-AO-0803
File Size: 355KB

Title: Complaint - Administration of the Vacancy Reduction Program

In response to a citizen's complaint, we performed a limited review of the administration of the Vacancy Reduction Program (VRP). The VRP focused on the rehabilitation of vacant units, and identification and correction of site and management deficiencies to achieve and sustain occupancy at Public Housing Authorities (PHAs). The Assistant Secretary for Public and Indian Housing (PIH) is responsible for administering VRP. The complainant alleged that the Director of the Community Safety and Conservation Division (CSCD) inappropriately used: A contractor to provide the same services that HUD staff performed, and Drug Elimination Program funds to pay Aspen Systems Corporation (Aspen) for VRP activities. We did not substantiate that the Director of CSCD used a contractor to perform services that HUD staff performed. However, we did find that the Director inappropriately used Drug Elimination Program funds to pay for VRP modernization requirements. We also determined that PIH did not provide adequate program oversight to VRP.

Issue Date: September 6, 2001
Audit Memorandum No.: 2001-DP-0802
File Size: 34KB

Title: Annual Evaluation of HUD's Security Program and Practices

In accordance with the requirements of the Government Information Security Reform Act (GISRA), this audit memorandum presents the results of our annual evaluation of HUD's security program and practices. The objective of our evaluation was to determine whether the Department's security program is effective. During our evaluation, we performed procedures designed to ascertain whether the Office of the Chief Information Officer (OCIO) has: (1) developed and implemented effective security policies and procedures; (2) monitored the effectiveness of those procedures; and (3) coordinated the timely and effective implementation of actions to correct reported security weaknesses. We also performed procedures to determine whether the Department has met the requirements of the Act by: (1) incorporating information security throughout the system lifecycle; (2) establishing an incident response capability to detect, report, and respond to security incidents; and (3) evaluating the effectiveness of its information security program. In conclusion, we found that the security-monitoring program still needs strengthening, the information security program lacks executive level leadership and direction, and previously reported weaknesses in management, operational, and technical controls remain uncorrected. As a result, the absence of an effective entity-wide security program, proactive leadership from the Office of the CIO, and adequate management, operational, and technical controls, may lead to insufficient protection of sensitive or critical resources and compromise the integrity, confidentiality, reliability, and availability of information maintained in HUD's systems.

Issue Date: August 29, 2001
Audit Report No.: 2001-AO-0003
File Size: 697KB

Title: Drug Elimination Funds Used for Creative Wellness Program

As a part of our audit plan to review Public and Indian Housing cooperative agreements, we reviewed the Creative Wellness Program developed by the National Institute for Medical Options (NIMO). Our audit objectives were to determine: whether funds were expended appropriately; if adequate monitoring and oversight over the creative wellness program agreements was provided; and if public housing drug elimination funds was an appropriate source of funding for a creative wellness program. We determined that PIH spent over $1.1 million of public housing drug elimination funds on a wellness program that did not adequately address issues pertaining to substance abuse, domestic violence, or violent crime as required by the interagency and cooperative agreements with the National Institute for Medical Options (NIMO). We believe the Deputy Assistant Secretary for Public and Assisted Housing Delivery misused her position to secure funding for the interagency agreement with the Department of Health and Human Services and the cooperative agreement for the creative wellness program developed by NIMO. Inadequate monitoring by the Grant Officer and the GTRs allowed NIMO to misspend $98,110 on ineligible and unsupported items.

Issue Date: August 29, 2001
Audit Memorandum No.: 2001-SE-103-0802
File Size: 417KB

Title: Nationwide Audit of Rent Reasonableness for Section 8 Tenant-Based Units

As part of our annual audit plan, we conducted an audit of HUD's controls regarding the determination of rent reasonableness for housing units assisted by the tenant-based Section 8 program. We found that Section 8 rents were generally reasonable. However, HUD should simplify its requirements to ensure conformance with federal statutes, increase effectiveness, and lesson public housing authority Section 8 administrative expense.

Issue Date: August 17, 2001
Audit Report No.: 2001-AT-0002
File Size: 985KB

Title: Troubled Agency Recovery Center, Memphis, Tennessee

This report presents the results of our audit of the Memphis, Tennessee, TARC. Our objective was to determine whether the TARC accomplished its mission in an efficient and effective manner. This included assessing the effectiveness of its management controls. We found the TARC's operations were generally inefficient and ineffective. For example, it did not consistently provide effective oversight to Public Housing Authorities (PHAs), and it did not fully utilize its staff. A 1999 OIG survey of the Memphis and Cleveland, Ohio, TARCs found similar deficiencies. While a recent management change at the TARC has improved operations, several areas need further improvement.

Issue Date: August 2, 2001
Audit Report No.: 2001-SE-107-0002
File Size: 1,209KB

Title: Implementation of the Native American Housing Assistance and Self-Determination Act of 1996

We performed a nationwide audit of the Native American Housing Assistance and Self-Determination Act of 1996 (NAHASDA) program implementation. The purpose of the audit was to determine if NAHASDA recipient performance is consistent with the Indian Housing Plan and if the Housing Entities efficiently, effectively, and economically provide affordable housing. Specifically, the audit objective was to determine if the Housing Entities: Have implemented and/or accomplished planned activities outlined in their Indian Housing Plan (IHP). Have a history of satisfactory performance. Are financially stable. Have acceptable management systems. Obtained required Single Audit Act reports. Developed and implemented operating policies. We performed on-site visits at 17 Housing Entities within four of the six Office of Native American Programs (ONAP) regions. Our objective was not to audit the tribes but to assess NAHASDA program performance as a whole.

Issue Date: June 29, 2001
Audit Report No.: 2001-AT-0001
File Size: 464KB

Title: Nationwide Audit of the Officer and Teacher Next Door Programs

This nationwide audit of the Department of Housing and Urban Development's (HUD) Officer Next Door and Teacher Next Door (OND/TND) property disposition programs disclosed that the programs are at high risk of abuse by homebuyers and HUD had not established adequate management controls over the programs. The audit identified the following adverse conditions: (1) 23 of 108 homebuyers in our sample abused the OND program by not fulfilling occupancy requirements and thus received unearned discounts of $734,800, (2) achievement of OND and TND program goals and objectives was not assessed, (3) homes were sold outside of revitalization areas and therefore were improperly discounted about $1.2 million, (4) a tracking and referral process for suspected program violators is needed, and (5) key records related to program activity were not preserved and properly archived.

Issue Date: June 14, 2001
Audit Memorandum No.: 2001-PH-0803
File Size: 163KB

Title: Philadelphia Homeownership Center, Single Family Disposition Activities, Philadelphia, Pennsylvania

We have completed a review of the Philadelphia Homeownership Center's (HOC) Single Family (SF) Disposition Activities. The review was performed in response to three external Management and Marketing (M&M) Contractor audit reports issued to the Philadelphia HOC. Specifically, we reviewed the HOC's monitoring controls over the M&M contractors within its jurisdiction and examined the plausibility of using Single Family Acquired Asset Management System (SAMS) data to better monitor SF disposition voucher processing controls, appraisal procedures, and sales to owner-occupant purchasers. Based on the review, the Philadelphia HOC needs to improve its M&M contractor oversight. Also, HOCs should develop better techniques to utilize SAMS data more effectively in their contractor monitoring and SF housing disposition activities. Because our review included an analyses of nationwide SAMS data, some of the SF disposition trends we identified appear to have universal applicability throughout the country. Accordingly, the recommendations contained in this memorandum, although addressed only to the Philadelphia HOC, may improve SF disposition activities at the Santa Ana, Denver, and Atlanta HOCs. As such, Headquarters (HQ) should consider implementing the recommendations at all HOCs. Details can be found under the "Results of Our Review" section of this memorandum.

Issue Date: June 4, 2001
Audit Report No.: 2001-AO-0002
File Size: 786KB

Title: Use of Contractors by the Deputy Chief Financial Officer

In response to an anonymous complaint, we performed a limited review of the Deputy Chief Financial Officer's (CFO) use of contractors. The complaint alleged that the Deputy CFO misused contract staff to perform inherently governmental functions and personal services, the contract staff duplicated work performed by HUD employees, and contract staff displaced HUD employees from their workspace. We concluded that PricewaterhouseCoopers (PwC), at the request of the Deputy CFO, prepared statements of work (SOWs), submitted proposals, and won two Federal Housing Administration contracts worth $12.9 million. Neither the Deputy CFO nor PwC disclosed PwC's participation in preparing the SOWs or the resulting organizational conflict of interest. In addition, PwC was directed to perform inherently governmental functions and personal services. We did not find duplication of work being performed by the contractors. However, we did find that HUD employees were moved from their workspace. Such movement did not violate any laws or regulations.

Issue Date: May 31, 2001
Audit Report No.: 2001-FW-0002
File Size: 17,164KB

Title: HUD's Compliance with the Government Performance and Results Act

We performed a nationwide audit to evaluate HUD's compliance with the Government Performance and Results Act of 1993 (GPRA). Specifically, we reviewed HUD's Strategic Plan and Annual Performance Plan to ensure that HUD had established a mission, goals, and objectives that conformed with HUD's authorizing legislation. In addition, we reviewed HUD's consultation process and the involvement of contractors in the preparation of HUD's plans. Further, we analyzed HUD's strategic planning process to determine if HUD used GPRA to manage its program growth and staffing resources. Although HUD's current Strategic Plan and Fiscal Year 2001 Annual Performance Plan are vast improvements over HUD's previous attempts, HUD was still not fully complying with the requirements of GPRA. As a result, the President, Congress and the taxpayer will be unable to fully use HUD's GPRA plans and reports to measure the results and scope of HUD's operations.

Issue Date: May 23, 2001
Audit Memorandum No.: 2001-BO-0801
File Size: 69KB

Title: Unprocessed Year-End Settlements for Contract Administered Section 8 Projects in Massachusetts

During a review of HUD Section 8 payments, we determined that there was a significant backlog of unprocessed settlements for contract administrators on the 270 Massachusetts projects managed by the Financial Management Center. Accordingly, we reviewed the unprocessed settlements as of December 31, 2000. Our objectives were to assess the significance of the backlog and the effectiveness of procedures to address it. Our review disclosed that unprocessed settlements are not being reviewed in a timely manner consistent with HUD's policy. As of December 31, 2000, there is a backlog of 289 unprocessed settlements for 122 projects covering years 1998-2000 (for the most part, some are older). Consequently, HUD has not collected approximately $3 million that was due HUD for net over-advances. The cost of money or interest incurred by HUD on the receivable is approximately $239 thousand.

Issue Date: May 11, 2001
Audit Report No.: 2001-FW-0001
File Size: 816KB

Title: Housing Authority of New Orleans, New Orleans, LA

We performed an audit of the Housing Authority of New Orleans (HANO) to ascertain the current status of the HANO's management structure. For the past 5 years, HANO has operated under a 2-year Cooperative Endeavor Agreement to correct long-standing problems, particularly with respect to the poor condition of its housing stock. During this time, Congress enacted the Quality Housing and Work Responsibility Act of 1998 (also known as the Public Housing Reform Act) that required HUD to create an Advisory Council which would help determine HANO's future. Our audit objectives were to: (1) ascertain the status of the Cooperative Endeavor Agreement; (2) review HANO's progress in modernizing its housing stock; and (3) determine if HUD complied with the Quality Housing and Work Responsibility Act requirement to create the Advisory Council. HUD has continued the Cooperative Endeavor Agreement (CEA) beyond its planned and contractual life.

HUD has continued the CEA because HANO continues to have major problems in carrying out its primary mission. Because of the poor condition of its housing stock, the most recent Cooperative Recovery Plan said HANO was "potentially troubled." HANO continues to have problems completing a modernization program at its 10 large conventional developments. HANO does not have the capacity to: (1) stabilize and renovate its viable developments; (2) demolish and dispose of units not meeting Section 202 requirements; (3) relocate residents during modernizations; and (4) construct suitable permanent housing. HANO's long-term success depends upon having an effective Section 8 Department, which HUD staff stated had been substandard for the past 3 years.

Six years ago we urged the Secretary to take over HANO and contract out the management of its properties to as many as 12 companies. We have amended our primary recommendation made 6 years ago, and we are now urging the Secretary to take over HANO and divide the housing authority into smaller housing authorities. This would allow the smaller housing authorities to focus on the problems affecting specific sites.

Issue Date: March 30, 2001
Audit Report No.: 2001-NY-0001
File Size: 1222KB

Title: Canal Corridor Initiative HUD Administered Small Cities Community Development Block Grant Program Section 108 Loan Guarantee Program New York State

We performed an audit of the U.S. Department of Housing and Urban Development's (HUD) Canal Corridor Initiative to assess HUD's efforts in achieving the program's objectives outlined in the Notice of Funding Availability (NOFA) published in the Federal Register of December 3, 1996 (Volume 61, Number 233). The Initiative sought to revitalize the economic base of communities in upstate New York through development projects and job creation along the canal system and connecting waterways involving grants from the Small Cities CDBG Program and loans from the Section 108 Loan Guarantee Program. As such, our audit objectives were to: (1) evaluate HUD's award process to the Grantees; (2) assess the Initiative's progress; (3) determine whether the Initiative's goals are being met, especially the goal of job creation; and (4) determine whether HUD is adequately monitoring the Grantees' progress and expenditures.

The Canal Corridor Initiative began with a NOFA dated December 3, 1996. Funding was provided to successful applicants in the form of Small Cities CDBG development grants and loans from the Section 108 Loan Guarantee Program, first in Fiscal Year 1997, and again, but to a much lesser extent, in Fiscal Year 1999. Our review did not disclose any improprieties regarding the award process. Essentially, all the Grantees located along the New York State waterways that requested funding were awarded funds.

While the Initiative has produced some limited successes by means of public improvement projects, most activities have been slow moving; thus, compromising the Initiative's ultimate success. HUD authorized over $100 million for the Initiative consisting of Section 108 Loans, Section 108 Grants and Small Cities CDBG Grants. However, four years after HUD introduced the Canal Corridor Initiative only $24.4 million has been expended and program objectives, such as, job creation are not being fully realized.

Not expending the funds jeopardizes a major objective of the Initiative that is to create jobs. Our site visits to 12 of the 53 funded Grantees disclosed that the 12 Grantees were to create 1338 jobs; however, at the time of our visits, only 153 jobs, which is less than 12 percent, were documented as created.

The audit showed that progress has been curbed because Grantees had little success brokering Section 108 Loans to third parties, and because HUD has not actively monitored Grantees; thus, allowing poor program performance to go undetected and unresolved.

Additionally, our site visits showed that Grantees often did not comply with the financial management systems requirements contained in Title 24 Code of Federal Regulations (CFR) Part 85. Numerous financial management deficiencies were noted during the site visits. In fact, we determined that 10 of the 12 Grantees we visited were not in compliance with Title 24, CFR Part 85 financial management requirements. Again, the absence of adequate monitoring allowed deficiencies to go undetected and unresolved.

Falling short of full compliance with the financial management systems requirements raises concerns as to the capacity of Grantees to carry out the Canal Corridor Initiative.

Unless HUD is willing to implement corrective actions, such as, the recommended actions in this report, slow program progress may continue unabated, and the potential for realizing program goals and objectives will be in jeopardy.

On March 27, 2001, we held an exit conference with HUD officials of the Community Planning and Development Division in Headquarters and the Buffalo Office to discuss the draft findings and recommendations. A written response to our draft findings was provided to us on March 29, 2001.

The written responses are shown in Appendix A of this report.

Issue Date: March 30, 2001
Audit Memorandum No.: 2001-PH-0802
File Size: 64KB

Title: Citizen Complaint, Forest Green Commons Townhouse Development/Joshua Meeks' House - HOPE VI Project

Based on a citizen complaint, we performed a limited review of the HUD Pittsburgh Public Housing Office's (PIH's) environmental assessment determination of the Joshua Meeks House (Property) located on Forest Green Drive in connection with a HUD funded HOPE VI Project (Forest Green Commons Townhouse Development). Specifically, the complainant alleged HUD and the developer did not properly apply the requirements of Section 106 of the National Historic Preservation Act in its review process. As discussed in the results of the review, we determined HUD followed all Federal requirements of the Act.

Issue Date: March 30, 2001
Audit Report No.: 2001-SE-107-0001
File Size: 240KB

Title: HUD Approval of a Student Housing Project for Cook Inlet Housing Authority

In response to complaints received by our office, we performed an audit to determine if HUD properly approved a student housing project for the Cook Inlet Housing Authority. We found that HUD officials improperly approved an ineligible student housing project that was not needed and did not meet the intent of the Native American Housing Assistance and Self-Determination Act (NAHASDA). In addition, HUD improperly waived requirements that limit costs on affordable housing.

Issue Date: March 28, 2001
Audit Report No.: 2001-FO-0004
File Size: 81KB

Title: Review of HUD's Internal Controls over Fiscal Year 1999 Annual Performance Data

We have completed a review of the internal controls over the Department of Housing and Urban Development's (HUD) fiscal year 1999 annual performance data. The objective of our review was to determine what internal controls HUD has established to ensure the accuracy and reliability of data presented in its fiscal year 1999 Annual Performance Report (APR).

HUD presented 85 performance indicators from ten headquarters offices in its fiscal year 1999 APR. In order to accomplish our objective, we selected a sample of performance indicators that were presented in HUD's fiscal year 1999 Annual Performance Report and remained in HUD's fiscal year 2001 Annual Performance Plan. We reviewed data for 22 performance indicators from eight offices. The data for six performance indicators from three offices were considered accurate and reliable, however, we identified problems with data for 16 indicators from five other offices. The results of our review are summarized below.

Many of the performance indicators we reviewed contained data that were estimated by HUD offices. Offices estimated the data because they did not have current data or did not have confidence in their data to give an accurate description of accomplishments. Although the estimates may have given a better picture than the data offices had, these offices cannot attest to the accuracy and reliability of these performance data presented in the fiscal year 1999 APR.

Data presented in the fiscal year 1999 APR for some performance measures were inaccurate. The inaccuracies occurred for different reasons. Some occurred because offices did not review a draft of the APR which was provided to them for final approval and therefore did not detect erroneous data that appeared in the report. Others occurred because systems that accumulate performance data were updated after data were extracted for the APR. Because of these inaccuracies, a clear picture of accomplishments is not being reported in the fiscal year 1999 APR.

HUD has not set Department wide standards for criteria that determine data quality and direct data cleanup efforts. As part of a data cleanup effort, a guidebook was published which established a process for determining data cleanliness based on six criteria; valid, unique, complete, consistent, timely, and accurate. The guidebook sets definitions for these criteria, however, it falls short of setting a standard for each criteria that program offices can follow to determine cleanliness of data. Without this, HUD offices do not have standards for criteria that determine data quality and serve as a basis to direct data cleanup efforts as well as to formulate data quality plans.

In general, the Deputy Chief Financial Officer and cited offices agreed with our findings and recommendations and stated that actions have been taken or are planned to strengthen internal controls over data quality. Detailed comments from the sited offices in our draft report were considered when finalizing this report. Changes to the report were made where appropriate.

Issue Date: March 22, 2001
Audit Memorandum No.: 2001-PH-0801
File Size: 60KB

Title: Project H.O.M.E., Supportive Housing Grants, PA26B80-0011, and PA26B97-0104 (Renewal), Philadelphia, Pennsylvania

As part of a nationwide review of HUD's Continuum of Care Program, we audited the Supportive Housing Grants awarded to Project H.O.M.E. (Housing, Opportunities, Medical Care, Education) for 1997 and 1998. Our objectives were to determine whether Project H.O.M.E.:

1.Implemented the grants in accordance with its applications;

2.Expended funds for eligible activities under Federal regulations and applicable cost principles;

3.Maintained evidence of measurable results;

4.Ensured a sustainable program; and

5.Expended funds timely.

As a result of our audit, we determined that Project H.O.M.E.'s: activities were consistent with its applications and achieved measurable results; funds were expended properly and timely; and projects were sustainable.

We believe that Project H.O.M.E.'s operations are both generally efficient and effective. However, we noted a lack of adequate income documentation and rent calculations in tenant files. While initial documentation was included in most tenant files, subsequent income documentation and rent calculations were not available. We recommend that Project H.O.M.E. maintain all applicable income documentation and rent calculations in the participant files.

Issue Date: March 1, 2001
Audit Report No.: 2001-FO-0003 File Size: 327KB (Includes Appendices A, B, and C)
Appendix D - 193KB - Agency Comments
Appendix E - 42KB - OIG Evaluation of Agency Comments
Appendix F - 7KB - Report Distribution
Principal Financial Statements - 88KB

Title: Audit of the U.S. Department of Housing and Urban Development (HUD) Fiscal Year 2000 Financial Statements

This report presents the results of our audit of the U.S. Department of Housing and Urban Development (HUD) financial statements for the year ended September 30, 2000. Our audit was conducted in accordance with the Chief Financial Officers Act of 1990, as amended. Guidance issued by the Office of Management and Budget requires us to report on HUD's financial statements, internal control, and compliance with material laws and regulations.

In our opinion, the financial statements present fairly, in all material respects, HUD's financial position as of September 30, 2000, and its net costs of operations, changes in net position, status of budgetary resources, and reconciliation of net costs to budgetary obligations for the year then ended.

Our report identifies four material weaknesses and ten reportable conditions on internal controls, discusses each of these weaknesses and conditions in detail, provides an assessment of actions taken by HUD to mitigate them, and makes recommendations for corrective actions. Most of these control weaknesses were reported in prior efforts to audit HUD's financial statements and represent long-standing problems.

Our review of HUD's compliance with laws and regulations disclosed that: a) HUD did not substantially comply with the Federal Financial Management Improvement Act, b) HUD did not comply with the United States Housing Act of 1937, as amended by the Quality Housing and Work Responsibility Act of 1998, and c) an allocation methodology used by FHA for certain contracts may require refinement and such re-allocation of contract costs between funds could result in a matter of noncompliance with the Anti-Deficiency Act.

During the course of the audit, we also identified other matters that are not material to the financial statements and are being separately communicated HUD's management for appropriate corrective action.

Issue Date: March 1, 2001
Audit Report No.: 2001-FO-0002
File Size: 716KB

Title: Audit of the Federal Housing Administration's Fiscal Year 2000 Financial Statements

This report presents the results of KPMG LLP's (KPMG) audit of the Federal Housing Administration's (FHA) financial statements for the year ended September 30, 2000.

In KPMG's opinion, the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 2000, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the year then ended. However, KPMG also reported a potential non-compliance with the Anti-Deficiency Act, 31 U.S.C. 1341 (a), that requires additional analysis, as well as a policy or legal determination by HUD's Office of General Counsel, OMB and/or the Comptroller General. The report identifies a material weakness and three reportable conditions on internal controls in Appendices A and B, discusses each of these conditions in detail, provides an assessment of actions taken by FHA to mitigate them, and makes recommendations for corrective actions. Appendix C briefly describes the resolution of a prior year material weakness and reportable conditions. During the course of the audit, KPMG also identified several matters which, although not material to the financial statements, are being separately communicated to us and FHA management.

Issue Date: February 27, 2001
Audit Memorandum No.: 2001-DP-0002
File Size: 1109 KB

Title: Audit of HUD's Central Accounting and Program System (HUDCAPS)

We completed an audit of HUD's Central Accounting and Program System (HUDCAPS). This audit was initiated based on the results of the OIG's Fiscal Year 1999 Financial Statements audit work, which resulted in a disclaimer of opinion. The disclaimer was given, in part, because of HUDCAPS system control weaknesses and Program Accounting System to HUDCAPS conversion problems.

The objectives of our audit were to determine the adequacy of the controls for maintaining data integrity and ensuring that data was protected against loss, errors, or unauthorized use. We evaluated the controls over (1) system maintenance, (2) data reliability, and (3) reconciliation of transactions.

We found significant internal control weaknesses in HUDCAPS as follows: (1) maintenance practices remain weak, (2) controls over data integrity and security access were inadequate, and (3) the Office of the Chief Financial Officer was not effectively utilizing the system for cash reconciliation. We also concluded that HUDCAPS can be a reliable financial management system if the Department is willing to invest the time and resources to correct the deficiencies we have identified. During the audit, the Office of the Chief Financial Officer has taken action to address the reported weaknesses. However, additional efforts are needed to fully correct the control deficiencies described in the report.

Issue Date: February 21, 2001
Audit Memorandum No.: 2001-DP-0801
File Size: 16KB

Title: Review of the Department's Internet Privacy Status, Pursuant to Requirements of the Treasury and General Government Appropriations Act, 2001

Our office has completed a review to determine whether the Department or any third parties, including other governmental agencies, are obtaining personally identifiable information relating to any individual's access or viewing habits for governmental or non-governmental Internet sites. The review (see Attached) was performed in accordance with December 21, 2000, Congressional legislation under Section 646 of the Treasury and General Government Appropriation Act, 2001 (Public Law 106-554). OIG determined that the Department has not been collecting personally identifiable information on HUD Internet users. However, two areas need improvement. Management oversight to ensure adequate privacy on HUD's Internet web pages should be strengthened. Additionally, the standard privacy statement needs strengthening and all HUD contracted sites should have hyperlinks to the statement.

Issue Date: February 20, 2001
Audit Report No.: 01-FO-177-0001
File Size: 87KB

Title: Audit of the Government National Mortgage Association's Fiscal Year 2000 Financial Statements

This report presents the results of KPMG LLP's (KPMG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the year ended September 30, 2000. In KPMG's opinion, the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 2000 and results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. In addition to KPMG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions with Ginnie Mae's internal controls, or material instances of non-compliance with laws and regulations. Furthermore, KPMG's assessment of Ginnie Mae's efforts to address recommendations from prior years indicated that, while some efforts are incomplete, the outstanding issues are not material to the financial statements, requiring reporting in the audit report. Instead, these outstanding issues are being reported separately to Ginnie Mae management.

Issue Date: February 14, 2001
Audit Memorandum No.: 2001-AT-0801
File Size: 68KB

Title: Interim Results - Officer/Teacher Next Door Program

OND/TND's purpose is to strengthen America's communities and build a safer nation by offering homeownership opportunities to law enforcement officers and teachers in revitalization areas. Officers and teachers may purchase one HUD-owned single-family home in a revitalization area or in a HUD-approved exception area at a 50 percent discount off the list price. The officer or teacher must then live in the home as their sole residence for 3 years from the date of closing. HUD sold approximately 3,824 homes under OND/TND from August 11, 1997, through July 31, 2000. HUD discounted about $152 million off the list price of these homes.

HUD initiated OND on August 11, 1997 (HUD Notice 97-51). Several significant changes to OND became effective August 2, 1999, with the issuance of Federal Register Notice 4277-I-02. The interim rule required (1) a second mortgage for the amount of the discount, (2) initial and annual certification of occupancy, (3) that officers not own any other residential real estate, and (4) that only single-family homes are eligible. On November 17, 1999, HUD expanded OND to include teachers (HUD Directive 99-30).

Closing agents did not execute second mortgages on 56 percent of the property sales in our sample that closed after the effective date of the second mortgage requirement. Our sample of all 29 OND home sales clustered in the Dade County area included 9 home sales subject to the second mortgage requirement. Second mortgages were not filed on 5 of these 9 homes sales. These five sales closed on various dates from December 22, 1999, to June 9, 2000. Additional evidence provided by the M&M contractor showed that second mortgages were not filed on 16 of 17 closings from March 24, 2000 to September 13, 2000.

Our interim results indicate that a high proportion of homebuyers abused and defrauded the OND/ TND program. Seven of the 29 homebuyers we reviewed, or about 26 percent, violated one or more program requirements by renting, selling or not living in the property. We also found strong indications that many other homebuyers may have violated the program requirements. OIG Investigations currently had 81 OND/ TND homebuyers under investigation for suspected violations, including 5 who were convicted and another 4 who pled guilty. HUD OND/ TND program staff in headquarters estimated that 25 percent of all OND/ TND homebuyers violated occupancy requirements after closing. Also, the Atlanta HOC began, but did not complete, a proactive monitoring effort that identified 12 homebuyers who were suspected of violating OND/ TND occupancy requirements.

Issue Date: February 13, 2001
Audit Memorandum No.: 2001-AO-0802
File Size: 236KB

Title: Fair Housing Initiatives Program Grant Administration Process Weaknesses Washington, DC

On February 13, 2001, we issued our final report on Fair Housing Initiatives Program (FHIP) Grant Administration Process Weaknesses (Audit Memorandum No. 2001-AO-0802). We performed this review as a result of allegations disclosed during our review of the Use of Fair Housing Initiatives Program Funds (Audit Memorandum No. 00-AO-174-0801). These conditions occurred because the Grant Officer (GO) did not amend the agreement as directed in the policy governing cooperative agreements. Also, the GO did not coordinate with the GTR during the negotiation process and FHEO had not developed and implemented timeframes for completing negotiations.

Issue Date: February 13, 2001
Audit Memorandum No.: 2001-AO-0801
File Size: 303KB

Title: FY1998 Fair Housing Initiatives Program, National Focus Education and Outreach Competition, Washington, DC

On February 13, 2001, we issued our final report on the FY 1998 Fair Housing Initiatives Program National Focus Education and Outreach Competition (Audit Memorandum No. 2001-AO-0801. We performed this review as a result of allegations disclosed during our review of the Use of Fair Housing Initiatives Program Funds (Audit Memorandum No. 00-AO-174-0801). We determined that the focus and scope of the $2 million FHIP project was significantly changed after Consumer Action had been selected to receive the award. This condition occurred because the Secretary's office used undue influence over the FHEO grant officials.

Issue Date: February 1, 2001
Audit Memorandum No.: 01-FO-177-0801
File Size: 648KB

Title: Independent Accountant's Report on the Department of Housing and Urban Development's Fiscal Year 2000 Detail Accounting Submission Report

In accordance with The Office of National Drug Control Policy (ONDCP) Reauthorization Act of 1998 and Office of National Drug Control Policy Circular: Annual Accounting of Drug Control Funds, dated December 17, 1999, the accompanying report presents the results of our attestation review of the Department of Housing and Urban Development's Submission of Detailed Accounting of FY 2000 Drug Control Funds, dated February1, 2001. Our review focused on assessing the Detailed Accounting prepared by the Office of Housing and the Office of Public and Indian Housing, prior year actual obligations, the accompanying disclosures, the financial systems and data supporting the drug methodologies, the estimation methods used, the completeness of the data, the application of the methodologies, and the assertions made regarding the obligation data presented in the Resource Summaries using the criteria indicated above. We were precluded by independence standards from reviewing the Detailed Accounting prepared by the Office Inspector General, and the Office of Inspector General has been given the authority to submit its Detailed Accounting report separately from HUD. Based on the review, nothing came to our attention that caused us to believe that the HUD's submission is not presented in all material respects with ONDCP's policy and circular.

Issue Date: January 31, 2001
Audit Report No.: 2001-AO-0001
File Size: 357KB

Title: Drug Elimination Technical Assistance Program

We completed an audit of the Public and Indian Housing Drug Elimination Technical Assistance Program (DETAP) in response to a citizen complaint. The overall audit objective was to determine whether the allegations regarding the administration of DETAP grants were valid. Our specific objectives were to determine: the adequacy of the methods used by Aspen to enter and use consultant profile information in the consultant database; the fairness of the process used for searching the consultant database for referrals; and the effectiveness of the HUD Government Technical Monitor in monitoring Aspen's administration of DETAP.

Issue Date: November 24, 2000
Audit Memorandum No.: 01-FW-111-0801
File Size: 28KB

Title: Request for Investigation of the Rainbow Village Project in Houston, Texas for a Possible Program Fraud Civil Remedies Act Filing

At the request of HUD's Counsel, we performed a limited review of the Rainbow Village Section 202 project to determine whether a Program Fraud Civil Remedies Act (PFCRA) filing was merited. To perform the review, we reviewed information provided by you and the project files. We also interviewed appropriate HUD staff. Based on our work and HUD's inaction, we do not believe that a PFCRA filing is appropriate. We do not believe that debarment is an appropriate action either. Instead, HUD should take administrative action to prevent any future payments to entities with prohibited conflicts of interest. In addition, HUD Counsel must determine whether HUD's inaction on information in its possession negatively affects its ability to recover previous payments to entities with conflicts of interest. Further, HUD should provide notice to the three individuals and their related conflict-of-interest entities that they will not be able to participate in any future phases of the project because of their conflicts. Finally, HUD must adjust the remaining amount of the developer's fee to ensure that the amount paid at final closing does not exceed the 8 percent regulatory cap.

Issue Date: October 31, 2000
Audit Report No.: 01-DP-166-0001
File Size: 231KB

Title: HUD's Entity-Wide Security Program

We completed an audit of HUD's entity-wide security program for computer based systems. Specifically, we evaluated whether HUD's security planning and management practices include: (1) assessing and managing risk; (2) developing and implementing effective security policies and procedures; and (3) monitoring the effectiveness of those procedures. We also reviewed the adequacy of the Department's efforts to implement Presidential Decision Directive No. 63. This Directive requires Federal entities to protect their critical infrastructures from intentional acts. Our audit concluded that HUD's security program needs significant improvement. We found that computer security weaknesses continue to pose risks to sensitive data and critical computer resources. Numerous deficiencies noted during our review are long-standing, having been identified in previous audits and reviews. HUD has not placed the appropriate emphasis on information systems security. Our report contains a number of recommendations to strengthen information security at HUD.

Issue Date: September 29, 2000
Audit Report No.: 00-AT-123-0002
File Size: 1,010KB

Title: Demolition of HUD Real Estate Owned Properties, Chicago, Illinois

This report presents the results of our internal audit of the demolition of U.S. Department of Housing and Urban Development's (HUD) Single Family properties by the City of Chicago, Illinois. HUD did not effectively prevent the costly and unwarranted demolition of HUD-owned properties by the City of Chicago. As a result, the stock of affordable housing in Chicago has been significantly reduced. Further, the FHA mortgage insurance fund suffered significant losses. We estimated losses on a sample of 30 HUD-owned properties demolished by the City and sold as vacant lots between June 1998 and February 2000 between $446,223 to $729,142. HUD will continue to lose an estimated $883,017 to $1,493,507 per year if it does not stop the City from demolishing HUD-owned properties. We also found that the City improperly used $94,920 of Community Development Block Grant funds in 1998 and 1999 to demolish 15 HUD-owned properties.

Issue Date: September 29, 2000
Audit Report No.: 00-DP-166-0804
File Size: 468KB

Title: Department's September 2000 Purchase of COTS Financial Management System

We are providing this audit memorandum to alert you to our concerns over the September 1, 2000, purchase of a Commercial Off-the-Shelf (COTS) software package for the Department's and FHA's core financial management system. The Department may be repeating a past mistake of a hasty decision without adequate studies and analyses. In an OIG memo dated January 28, 1998, we outlined several risks associated with the Department's decision to implement the existing COTS integrated financial system. These risks include an incomplete evaluation of viable solutions, user requirements, costs, and data conversion. Since that decision, the Department encountered delays and cost overruns, resulting in an inability for the OIG to render an opinion on the FY 1999 Financial Statements. In order to minimize the risk of another failure, we are recommending that before any development work starts for this new initiative, adequate feasibility and cost/benefit analyses are completed, user requirements are defined, and the Department's Enterprise Architecture Plan is completed.

Issue Date: September 29, 2000
Audit Report No.: 00-PH-119-0001
File Size: 421KB

Title: Up-Front Grant Program

We completed an audit of the Department's administration of the Up-Front Grant Program. The purpose of our audit was to determine whether HUD awarded Up-Front Grants according to its program guidelines, and if HUD monitored grantees to ensure they were complying with the terms and conditions of Grant Agreements. We found HUD is not following many of its key program guidelines for awarding Up-Front Grants and is not adequately monitoring grantees that have received Up-Front Grants.

Issue Date: September 29, 2000
Audit Related Memorandum No.: 00-PH-169-0802
File Size: 413KB

Title: Progress Assessment - Implementing the Resource Estimation and Allocation Process (REAP)

We have completed an assessment of the Department's progress in developing and implementing a Resource Estimation and Allocation Process (REAP) using the preceding methodology. We found that HUD conveyed to Congress the realization that it needed a resource management system and that it planned to implement such a system within 18 months. We found that HUD with the National Academy of Public Administration (NAPA) developed a methodology for resource estimation and allocation. Further, NAPA briefed each Assistant Secretary on the REAP methodology and the impact it would have on their programs. Also, HUD selected a contractor to implement the methodology and do the measurement studies at various program offices throughout the Department to determine resource estimate requirements.

Issue Date: September 29, 2000
Audit Related Memorandum: 00-FO-2214-0802
File Size: 104KB

Title: Survey of HUD's Contract Award Process

We have completed a survey of HUD's contract award process with the focus on the two management and marketing contracts awarded in June 2000. The survey was a follow-up on issues relating to HUD's decision to award contracts to the In Town Management Group to perform services as a "management and marketing contractor." The survey reviewed the policies and procedures used by HUD to ensure awards are made to responsible contractors. The objective was to determine whether HUD should change the contracting process as a result of lessons learned from the In Town management and marketing contracts.

From our review of the preaward files for the management and marketing contracts awarded in June 2000, we concluded that HUD's Contracting Office had followed the procedures prescribed in the Federal Acquisition Regulations (FAR) as they relate to ensuring awards are made to responsible contractors. However, greater emphasis is needed on verifying past performance and improvements should be made in supporting the evaluations of the bid proposals. Also, procedures are needed to ensure the required provisions are added to all contracts where contractors have access to HUD's sensitive automated systems. The Chief Procurement Officer's generally accepted and agreed to implement our recommendations. We completed our field work in August 2000.

Issue Date: September 29, 2000
Audit Report No.: 2000-SE-107-0002
File Size: 1572KB

Title: Office of Native American Programs Staff Training Conference, Reno, NV

We received three complaints regarding a staff training conference conducted by the Office of Native American Programs (ONAP) from December 6-9, 1999. One of the complaints alleging insensitive or offensive material was provided to us through a senatorial inquiry. The senator requested this office to provide a report along with any findings of concern. In response to the allegations in the three complaints, we conducted a review to determine if:
* insensitive or offensive material was presented during skits performed at the conference.
* an unauthorized individual attended the conference at government expense.
* employee misconduct occurred during the conference.
* the conference was not an effective or efficient use of government resources.

We concluded the skit was offensive and derogatory Alaska Office of Native American Programs management personnel were involved in the development and presentation of a skit that contained material that was at a minimum insensitive to Native Alaskans and derogatory toward their culture.

In our opinion, the presentation of the skit was the result of current Alaska ONAP management personnel's lack of professional judgment, as well as a lack of skills in the areas of cultural sensitivity, human relations, communications, and diversity.

The Assistant Secretary for Public and Indian Housing needs to ensure that Alaska ONAP management personnel understand the seriousness of their actions and in the future follow HUD policies, regulations, and requirements with regard to insensitive and offensive material. To help achieve this, we are recommending that the Assistant Secretary (i) have the Alaska ONAP Administrator issue a public apology, (ii) require training courses for Alaska ONAP management and staff, and (iii) consider if disciplinary action against responsible parties is appropriate.

Persons responsible were not held accountable.

Headquarters Office of Native American Programs officials did not hold those responsible for presenting offensive or insensitive material at the training conference accountable for their actions and have not been proactive in oversight and management of Alaska ONAP.

There was no accountability because Headquarters ONAP officials failed to recognize material that was insensitive or offensive that was presented at the training conference. Furthermore, Headquarters ONAP has not been proactive in addressing Equal Employment Opportunity (EEO) and work environment issues through their management practices.

We are recommending that the Assistant Secretary for Public and Indian Housing ensure that there will be no tolerance for insensitive or offensive actions or behavior in the workplace and work environment issues are made part of ONAP office reviews by:
* ensuring amendment of area ONAP office review guides to specifically include:

1. compliance with EEO and Affirmative Employment regulations, policies, guidelines, and goals.

2. measurement of office environment and morale.

* issuance of a memorandum stating there is zero tolerance for jokes, comments, or other material that is offensive or insensitive to any ethnicity, race, sex, disability, religion, color, or other class of people, and issue disciplinary guidelines for such actions.

Controls over attendance need improvement

An unauthorized individual attended the training conference at government expense because ONAP management officials failed to consider all relevant criteria before allowing the person to attend. Also, we found no evidence to support allegations of employee misconduct at the ONAP Staff Training Conference in part because ONAP did not have good controls over attendance. Overall, the training conference was an efficient and effective use of government resources.

We are recommending that the Assistant Secretary for Public and Indian Housing ensure adequate controls are in place over attendance at future organizational training events.

HUD agreed with the audit results

Draft findings were provided to the Assistant Secretary for Public and Indian Housing for written comments on August 25, 2000. We received the Assistant Secretary's response on September 26, 2000, and incorporated his comments into the report as appropriate. The Assistant Secretary stated in his comments that the Office of Native American Programs is ready to implement the recommendations made. The Assistant Secretary declined an exit conference.

We appreciate the cooperation of employees in the Anchorage (Alaska) HUD Office as well as officials in the Offices of Public and Indian Housing and Native American Programs in promptly complying with our requests for information.

Issue Date: September 29, 2000
Audit Report No.: 2000-SE-119-0003
File Size: 1344KB

Title: Nationwide Audit of Use and Disposition of Residual Receipts Office of Multifamily Housing Programs

This final report contains the results of our recent audit of the use and disposition of residual receipts. We initiated the audit based on information obtained during the financial audit for Fiscal Year 2000. The purpose of the audit was to determine if HUD: (1) considers using residual receipts as a source of funds when housing assistance payments (HAP) contracts expire and are renewed, (2) has adequate controls in place to ensure that funds in residual receipts accounts are properly returned to HUD when property owners opt out of the Section 8 program, and (3) was aware of the amount of residual receipts being generated by uninsured assisted properties.

The report contains four findings that indicate HUD should utilize and improve controls over residual receipts. Currently, HUD does not consider or use residual receipts as a source of funds when renewing expiring Section 8 HAP contracts for insured multifamily properties. In addition, the review disclosed one case where, due to inadequate HUD controls, a former property owner prepaid an insured property's mortgage and withdrew $64,369 in residual receipts. Also, unlike other major Section 8 contracts for multifamily properties, current regulations for properties in the Loan Management Set-Aside (LMSA) program do not allow HUD to recover residual receipts at contract termination. Finally, HUD does not receive financial information about uninsured Section 8 assisted properties managed by State Housing Agencies that generate significant residual receipts.

Issue Date: September 29, 2000
Audit Related Memorandum No.: 00-BO-111-0802
File Size: 540KB

Title: Section 8 Contract Renewal Process

The purpose of our review was to evaluate the appropriateness, economy and efficiency of Section 8 contract renewals and Departmental efforts to encourage owners not to opt out of affordable housing programs. In Spring 1999, HUD created Mark Up to Market (MUTM) to offer owners a financial alternative to opting out of their Section 8 contracts. Owners are continuing to opt out because they find opting out more attractive than continuing in the Section 8 Program. Streamlining the MUTM process could result in fewer opt outs.

Issue Date: September 29, 2000
Audit Report No.: 00-KC-103-0002
File Size: 209KB

Title: Housing Subsidy Payments Office of Housing

We have completed an audit of the Office of Housing's controls over housing subsidy payments. Specific audit objectives were to identify and evaluate controls in place to ensure the accuracy of: project owner/agent entered tenant data in the Tenant Rental Assistance Certification System (TRACS) database; and Section 8 special claims.

During our review, we identified areas where controls needed improvement to assure that housing subsidy payments are accurate and appropriate. These areas are summarized below and detailed in the findings section of the report. In addition, previous Office of Inspector General audits reported that the management controls relevant to verification of applicant and tenant income do not adequately prevent or detect cases of unreported income. HUD has reported this control as a material weakness in its annual Federal Manager's Financial Integrity Act report since fiscal year 1996. HUD needs to continue reporting this control as a material weakness.

Issue Date: September 28, 2000
Audit Report No.: 00-AT-123-0001
File Size: 852KB

Title: Single-Family Property Disposition Program

This report presents the results of our nationwide internal audit of FHA's single family property disposition program. It is a compilation of external audit reports on seven M&M contractors as well as audit work performed at FHA's four homeownership centers (HOCs) and at the Department of Housing and Urban Development (HUD) Headquarters.

Our audit determined that outsourcing of program operations resulted in reduced returns to the mortgage insurance fund of about $188 million. We attribute the losses to poor M&M contractor sales performance and substantially increased program costs. We believe FHA's failure to perform a cost benefit analysis in accordance with A-76 contributed to the poor program performance and loss of funds.

Our audit also confirmed what FHA has repeatedly found in its monthly performance assessment reports. As discussed in Finding 2, none of the contractors we audited managed properties according to contract requirements. Contractors did not perform timely initial inspections, perform adequate inspections, correct hazardous conditions, make repairs, or perform routine maintenance to preserve and protect properties. The poor property conditions decreased marketability, increased FHA's holding costs, negatively affected surrounding communities, reflected poorly on the Department, and in some cases, threatened the health and safety of the public. Although FHA repeatedly reported the deficiencies in its monthly performance assessment reports, it has not been successful in improving property conditions under private management.

Issue Date: September 28, 2000
Audit Related Memorandum No.: 00-CH-119-0801
File Size: 310KB

Title: HUD's Settlement Agreement, Associated Estates Realty Corporation, Office of Multifamily Housing

We completed a review of HUD's Settlement Agreement with Associated Estates Realty Corporation. The objectives of our review were to determine: (1) why HUD entered into the Settlement Agreement; (2) whether the Agreement was appropriate according to Federal laws and HUD's requirements; and (3) if HUD enforced the terms of the Settlement Agreement. The Settlement Agreement was entered into because of HUD's desire to settle a rent increase lawsuit filed by Associated Estates. HUD also wanted to remove Associated Estates from the four Projects to protect the tenants from unhealthy and unsafe living conditions. The Settlement Agreement required: HUD to pay Associated Estates $1.78 million for requested rent increases; Associated Estates to find new owners for Rainbow Terrace and Park Village Apartments, or transfer the Projects to HUD; and HUD agreed not to take administrative actions against Associated Estates and released Associated from any and all claims except tax or criminal fraud.

Issue Date: August 10, 2000
Audit Related Memorandum No.: 00-AO-185-0802
File Size: 64KB

Title: Citizen Complaint - Tenant-Based Section 8 Program Horning Brothers

In response to a complaint from a former Horning Brothers employee, we completed a limited review of Horning Brothers' Section 8 transactions. The complainant alleged that Horning Brothers was improperly retaining Federal funds received under the Section 8 program. Specifically, the complainant stated that Horning Brothers had retained HUD overpayments of Section 8 certificates and vouchers and had failed to notify HUD to make the appropriate adjustments.

Based on our limited review, we concluded that Horning Brothers improperly retained $72,162 of District of Columbia Housing Authority's funds (including accrued interest) and disbursed or transferred $10,618 without any supporting documentation. Horning Brothers accomplished this by establishing a Tenant Assistance Payment (TAP) escrow account to temporarily retain funds that could not be identified to a specific tenant or property. Some deposits made as early as 1995 were still in the TAP escrow account when we completed our field work in April 2000.

Issue Date: July 6, 2000
Audit Related Memorandum No.: 00-AO-174-0801
File Size: 647KB

Title: Anonymous Complaint Use of Fair Housing Initiatives Program Funds, Washington, DC

In response to an anonymous complaint, we performed a limited review of the Fair Housing Initiatives Program (FHIP) grant award process. FHIP funds grants, contracts, or cooperative agreements with State and local government agencies, public or private nonprofit organizations, or other entities that conduct programs to prevent or eliminate discriminatory housing practices. The Assistant Secretary for Fair Housing and Equal Opportunity (FHEO) is responsible for administering FHIP.

We found that two of the three allegations were credible. Specifically, HUD violated the FHIP authorizing statute by granting the Boston Housing Authority a $297,060 conditional award for clearly prohibited purposes. In addition, HUD allocated $200,000 to another grantee for national fair housing activities which were never conducted in 1999. We found that the allegation concerning misuse of National Education Component funds lacked merit. In reviewing the specific allegations, we identified other deficiencies relating to funding diversity and audit trails for scoring applications. Until these weaknesses are addressed satisfactorily, FHEO cannot assure Congress and taxpayers that FHIP funds are awarded as intended and that the program is operating efficiently and effectively.

Issue Date: July 5, 2000
Audit Related Memorandum No.: 00-CH-211-1809
File Size: 33KB

Title: Harbor View Estates Multifamily Equity Skimming Duluth, Minnesota

We completed an audit of the books and records of Harbor View Estates. We performed the audit to determine whether Project funds were used in compliance with the Regulatory Agreement and other agreements, and applicable HUD policies and procedures. The review was part of our Operation Safe Home initiative.

We found that Duluth Harbour Investments, Incorporated, the former owner of Harbor View Estates, inappropriately disbursed $356,638 of Project operating funds while the Project was in a non-surplus cash position and/or while its mortgage was in default. The expenditures included: $113,924 for repayments of owner advances and/or loans; $62,062 for loan payments of identity-of-interest companies; $45,926 for unsupported payments to related parties; $44,967 for transfers to related parties' bank accounts; $42,860 for non-Project utility costs; $23,844 for garnished operating funds; $16,300 for security deposit funds disbursed for unidentifiable expenses; and $6,755 for unsupported miscellaneous expenses. We also found that Melhus Management Company, a former management agent of the Project, improperly received $5,899 of Project funds for excess management fees and unauthorized lease-up fees. As a result, the Project's expenses were overstated and there were fewer cash resources available for debt service or to pay reasonable and necessary operating expenses timely.

Issue Date: June 30, 2000
Audit Related Memorandum No.: 00-DP-166-0804
File Size: 14KB

Title: Audit Related Memorandum on Program Income

We performed a limited application controls review of HUD's Integrated Disbursement and Information System (IDIS) as part of our work in support of the audit of HUD's Fiscal Year 1999 financial statements. Attached is the results and recommendation from our review. During FY 1999, 649 grantees and six states reported approximately $647.5 million in program income. We found CPD had removed an automated control in IDIS to ensure that non-revolving program income is first used by the grantees before drawing on other entitlement funds. This fund control is required by federal regulations. Without this control in place, HUD could end up overpaying millions of dollars to the grantees.

Issue Date: May 15, 2000
Audit Related Memorandum No.: 00-FO-177-0801
File Size: 1,056KB

Title: Independent Accountant's Report on the Department of Housing and Urban Development's Fiscal Year 1999 Detail Accounting Submission Report

In accordance with The Office of National Drug Control Policy (ONDCP)Reauthorization Act of 1998 and Office of National Drug Control Policy Circular: Annual Accounting of Drug Control Funds, dated December 17, 1999, the accompanying report presents the results of our attestation review of the Department of Housing and Urban Development's Submission of Detailed Accounting of FY 1999 Drug Control Funds, dated March 31, 2000 and revised May 9, and May 10, 2000.

Our review focused on assessing the Detailed Accounting prepared by the Office of Housing and the Office of Public and Indian Housing, prior year actual obligations, the accompanying disclosures, the financial systems and data supporting the drug methodologies, the estimation methods used, the completeness of the data, the application of the methodologies, and the assertions made regarding the obligation data presented in the Resource Summaries using the criteria indicated above. We were precluded by independence standards from reviewing the Detailed Accounting prepared by the Office Inspector General. In addition, the Office of Inspector General has been given the authority to submit its Detailed Accounting report separately from HUD.

Issue Date: May 11, 2000
Audit Report No.: 00-DP-166-0003
File Size: 680KB

Title: Integrated Disbursement and Information System (IDIS)

We completed an audit of HUD's ongoing development efforts for improving the Department's Integrated Disbursement and Information System (IDIS). The objectives of our audit were to review: (1) the current status of the IDIS development efforts (including the process for making changes to program code); (2) Community Planning and Development's (CPD) operation of the system and interface with the grantee system users; and (3) the control over data input security and integrity.

We found that several changes are being made to improve the system but without adequate program code testing. As a result, additional programming errors are being introduced which are preventing CPD from reaching its goal of restoring user faith in the system. Much of the testing inadequacies can be corrected by enforcing adequate testing of all changes and using an automated testing tool. We also found that security over data input is inadequate and have made several recommendations for improvement.

Issue Date: May 3, 2000
Audit Related Memorandum No.: 00-PH-119-0801
File Size: 214KB

Title: Presbyterian Association on Aging, Plumwood Apartments, Parker Heights, and Sprucewood Commons - Section 811 and 202 PRAC Projects, Oakmont, Pennsylvania

Our Mid-Atlantic office has completed a review of the granting of income and age waivers for the Plumwood Apartments, Parker Heights and Sprucewood Commons projects. Our review was performed as a result of a confidential complaint concerning the Pittsburgh Multifamily Housing Division's granting of age and income waivers for projects owned by the Presbyterian Association on Aging (Owner). Specifically, the complainant alleged multifamily staff improperly granted income and age waivers for Plumwood Apartments, a Section 811 project; and Parker Heights and Sprucewood Commons which are two Section 202/PRAC facilities.

Based on the review, we believe the Pittsburgh Multifamily Housing Division improperly granted income and age waivers for the above projects and therefore, jeopardized the integrity of HUD programs designed for very low-income families.

Issue Date: April 6, 2000
Audit Related Memorandum No.: 00-SF-121-0802
File Size: 129KB

Title: Internal Audit - Single Family Housing, Los Angeles Area Office and Santa Ana Homeownership Center, Santa Ana, California

We completed a limited review of the Los Angeles Area Office and Santa Ana Homeownership Center's single family housing loan production operations. The purpose of our review was to determine whether the Office and Center implemented management controls needed to adequately oversee mortgagees' loan origination practices and compliance with HUD regulations and requirements. Specifically, we determined whether the existing controls would have been sufficient to have detected and/or corrected apparent irregularities in loans originated by a mortgagee, Allstate Mortgage Company.

Issue Date: March 31, 2000
Audit Report No.: 00-DE-156-0001
File Size: 618KB

Title: Non-Competitive 1998 Rural Housing and Economic Development Grant Awards

This report contains one finding which identifies that HUD's Office of Native American Programs non-competitively awarded three Rural Housing and Economic Development grants totaling $6 million, or 43 percent, of the grant dollars awarded in 1998. In making these awards, HUD acted contrary to the 1998 HUD Appropriations Act, the Community Development Act of 1974, as amended, and the HUD Reform Act of 1989. We are recommending that you notify appropriate Congressional Committees of the $6 million awarded contrary to Congressional requirements and seek Legislative relief for these awards. We are also recommending you review current HUD procedures and take appropriate actions to strengthen procedures to ensure that future grant awards comply with Legislative requirements. These actions, at a minimum, should include creating administrative remedies for awarding grants without required competition.

Issue Date: March 31, 2000
Audit Report No.: 00-BO-111-0002
File Size: 225KB

Title: Use of the Real Estate Assessment Center's Physical Inspection Assessments

We conducted an audit of the Office of Housing's use of physical inspection assessments generated by HUD's Real Estate Assessment Center (REAC) on multifamily properties insured by the Federal Housing Administration and/or receiving project-based subsidy under the Section 8 program. The purpose of our review was to evaluate actions taken to address and track corrections to the physical deficiencies disclosed through the REAC property inspections.

Although the Office of Housing utilizes the REAC property inspections within their servicing responsibilities, the report addresses the need for the Office of Housing to reinforce its assurances and improve its processes to strengthen the Department's oversight of its portfolio of insured and subsidized multifamily properties. Specifically, we determined that the Office of Housing does not have the proper assurances that corrective action is completed by the owner to the extent of all the physical deficiencies reported by the property's REAC inspection. This includes assurances that exigent health and safety violations are corrected within the required time frame and that complete property surveys identifying the magnitude of the physical deficiencies are performed. Further, we determined that the Office of Housing can improve the current notification process to field office staff of completed property inspection reports and exigent health and safety violations released by REAC.

Issue Date: March 31, 2000
Audit Related Memorandum No.: 00-AT-123-0803
File Size: 38KB

Title: Interim Report, Atlanta Homeownership Center, Real Estate Owned, Single Family Property Disposition Program, Area-3

We have completed a survey of the Atlanta Homeownership Center's (HOC) Single Family Property Disposition Program for the HOC jurisdiction known as Area-3. The survey was performed as part of an ongoing national assessment of the performance and success of the Management and Marketing (M&M) contracting initiative. The survey primarily focused on operations of Southeast Alliance of Foreclosure Specialists, LLP (SAFS), a M&M contractor. However, we also performed survey work at the HOC to assess its controls over the contractor. Our survey identified significant weaknesses in SAFS's operations which warrant additional audit work and immediate corrective action. As such, we have initiated audit work at SAFS. Although we are not currently issuing controlled recommendations regarding the weaknesses cited in this memorandum, we do suggest immediate action be taken.

Issue Date: March 31, 2000
Audit Report No.: 00-AO-177-0001
File Size: 1629KB

Title: Nationwide Audit of Storefront Operations

We performed a nationwide audit of Storefront Operations to evaluate the effectiveness and efficiency of the operation. The new HUD Storefront Office, one of many changes the Department is making as part of the 1997 HUD 2020 Management Reform Plan, is intended to serve as a national model of more responsive government. We wanted to determine the amount and source of funding for storefront operations and kiosks; and the adequacy of HUD's policies and procedures relating to staffing, training, site selections, and monitoring and evaluating the storefronts' overall performance in meeting the stated goals and long-term vision. The audit included reviews in Headquarters; Albuquerque, New Mexico; Baltimore, Maryland; Buffalo, New York; Reno, Nevada; Sacramento, California; and Washington, DC. The audit found that HUD storefront operations and kiosks were costly, poorly planned, and lacked measurable benefits. We also determined that HUD's storefront implementation was so aggressive that HUD did not adequately: establish management controls over storefront operations; plan or support storefront staffing levels; or establish national HUD goals for Community Builders.

Issue Date: March 31, 2000
Audit Report No.: 00-KC-105-0001
File Size: 317KB

Title: Assessment of Resident Association Grants

We have completed a review of Resident Associations. The objective of our review was to assess the results of all audits conducted of the Tenant Opportunity Program to determine if systemic problems existed, and if they have been adequately addressed in the new Resident Opportunities and Self Sufficiency program. The review was conducted in accordance with OIG's general audit plan.

The Office of Inspector General has issued eight audit reports evaluating the use of $1,306,861 in Tenant Opportunity Program grant funds. The eight reports consistently identified similar deficiencies which existed because of weaknesses in the Tenant Opportunity Program. Grantees spent $395,707, or 30 percent of the funds reviewed, on ineligible or unsupported items.

We concluded the Resident Opportunities and Self Sufficiency program improves upon many of the controls of the Tenant Opportunity Program. However, it does not adequately address all weaknesses that were reported with the Tenant Opportunity Program. The new program does not incorporate procedures that ensure grantees have adequate administrative capabilities and partnerships with housing authorities and receive sufficient on-site, real time monitoring. As a result, HUD needs to further improve its controls over the new program to ensure that it will meet its intended objectives and goals.

Issue Date: March 31, 2000
Audit Report No.: 2000-SE-121-0001
File Size: 2,064KB

Title: Final report of nationwide audit, Down payment assistance programs, Office of Insured Single Family Housing

This is the final report of our audit of down payment assistance provided by private nonprofit organizations. We initiated the audit in response to citizen concerns about HUD-approved innovative down payment assistance programs. The purpose of the audit was to determine if: (1) the structure of the loan transactions involving down payment assistance from a nonprofit complied with HUD requirements; (2) HUD has the controls in place to approve, monitor, and evaluate the performance of private nonprofit organizations' down payment assistance programs; and (3) loans in which nonprofit organizations provided down payment assistance to buyers increase the risk to the Federal Housing Administration's (FHA's) insurance fund.

Audit results show that HUD allowed nonprofit organizations to operate down payment assistance programs that circumvent FHA requirements. The down payment loan transactions do not meet the intent of FHA requirements in that the down payment assistance is not a true gift from the nonprofit, and the nonprofit is being reimbursed for the assistance by the seller. Audit results indicate that default rates for buyers receiving down payment assistance from nonprofit organizations are significantly higher than for other FHA loans. Also, some sellers have raised the sales prices of properties to cover the cost of the down payment assistance programs causing buyers to finance higher loan amounts. The circumvention of FHA requirements occurred because HUD did not have an established process or specific criteria to evaluate these programs.

Issue Date: March 30, 2000
Audit Report No.: 00-SF-121-0001
File Size: 520KB

Title: Single Family Production, Home Ownership Centers, Atlanta, GA, Denver, CO, and Santa Ana, CA

We have completed an audit of the single family loan production activities of HUD's home ownership centers. The audit was undertaken because of significant changes in the past few years affecting single family loan origination activities. The changes included: (1) loan underwriting requirements, (2) the establishment of Home Ownership Centers, and (3) the transfer of virtually all aspects of single family production and program monitoring from HUD staff to lenders and contractors under the oversight of the Home Ownership Centers. This report contains five findings with recommendations for improving single family operations.

Issue Date: March 28, 2000
Audit Report No.: 00-BO-101-0001
File Size: 357KB

Title: Use of the Real Estate Assessment Center's Physical Inspection Assessments

We conducted an audit of the Office of Public and Indian Housing's use of physical inspection assessments generated by HUD's Real Estate Assessment Center (REAC) on public housing properties. The purpose of our review was to evaluate actions taken to address and track corrections to deficiencies disclosed through the REAC physical inspections. The report's finding indicates that: (1) the Office of Public and Indian Housing has not fully engaged the use of REAC physical inspection since the process was implemented in October 1998 and (2) the need to establish a system for tracking corrective action resulting from the REAC physical inspections.

Issue Date: March 28, 2000
Audit Report No.: 00-NY-177-0001
File Size: 397KB

Title: Nationwide Audit, Enforcement Center

We performed a nationwide audit of the Enforcement Center to assess the Center's efforts towards achieving the Secretary's strategic objective of restoring the public trust. The audit included reviews at the Enforcement Center's Headquarters and at its Satellite Offices in New York, Chicago, and Fort Worth. The audit determined that unless the U. S. Department of Housing and Urban Development (HUD) is willing to provide the Center with the necessary authority and resources to make prompt decisions when pursuing Enforcement actions, the Center will not achieve its full potential of aggressively pursuing enforcement actions against non-complying entities.

Issue Date: March 17, 2000
Audit Report No.: 00-AT-123-0802
File Size: 35KB

Title: Atlanta Homeownership Center, Real Estate Owned, Single Family Property Disposition Program, Area-2

We have completed a survey of the Atlanta Homeownership Center's (HOC) Single Family Property Disposition Program for the HOC jurisdiction known as Area-2. Our survey was performed as part of an ongoing national assessment of the performance and success of the Management and Marketing (M&M) contracting initiative. Area-2 has been managed by HOC employees since the failure of Intown Management, cancellation of its contract, and bankruptcy of the firm in September 1999. Our survey did not focus on Intown's failure, but rather on HUD's contingency planning, ability to recover from failure of its contractor, and most importantly, ability to sustain the program's mission.

Based on the survey, we believe the HOC has generally been effective in correcting many of the problems created by Intown. Operations have improved under the supervision and guidance of the HOC management and staff, and we commend your efforts in resolving many of the significant challenges you faced following Intown's failure. Not surprisingly, however, is that HUD still has not met its program mission. Our survey found increasing inventory, decreasing revenues, properties not maintained according to requirements, untimely disposition programs, and incomplete inventory files. While our assessment of Area 2 operations gave ample evidence of the superior management capabilities of HOC employees over the private contractor, it did not give credence to the benefits of outsourcing single family property disposition operations.

HUD anticipates implementing a new M&M contract for Area-2 in July 2000. In view of this upcoming event, we do not plan additional audit work of Area-2 at this time nor do we offer any formal recommendations.

Issue Date: March 1, 2000
Audit Report No.: 00-FO-177-0003
File Size: 276KB (Includes Appendices A, B, and C)

(Due to their file sizes, separate links are provided below for Appendices D, E, F, and G)

Appendix D - 544KB - Agency Comments
Appendix E - 546KB - OIG Evaluation of Agency Comments
Appendix F - 1,231KB - HUD OGC Legal Opinions and OIG Legal Analysis Regarding Modernization Funds
Appendix G - 7KB - Report Distribution

Title: US Department of Housing and Urban Development Attempt to Audit the FY 1999 Financial Statements

In accordance with the Chief Financial Officers (CFO) Act of 1990, we have reported the results of our attempt to audit HUD's principal financial statements for the fiscal year ended September 30, 1999. We issued our report to meet our obligation under the CFO Act to report by March 1, 2000. Our report explains why we were unable to perform sufficient procedures to opine on HUD's financial statements in time to meet this statutory due date or be reasonably close to meeting this date. We issued our report without HUD's principal financial statements. HUD is responsible for completing its Fiscal Year 1999 Accountability Report, which is to include the financial statements along with this report or an update. Our report includes our findings on HUD's internal controls and compliance with laws and regulations resulting from our attempt to audit HUD's principal financial statements. Had we completed our audit, we might have found additional matters we would have reported. Our report discusses the significance of HUD's financial management and control problems and HUD's actions to correct them. Our report also contains recommendations to assist the Department in its continuing efforts to correct these longstanding problems.

Issue Date: February 29, 2000
Audit Report No.: 00-FO-131-0002
File Size: 415KB

Title: Audit of the Federal Housing Administration's Fiscal Year 1999 Financial Statements

This report presents the results of KPMG LLP's (KPMG) audit of the Federal Housing Administration's (FHA) financial statements for the year ended September 30, 1999. We concur with KPMG's opinion, that the financial statements present fairly, in all material respects, FHA's financial position as of September 30, 1999, and its net costs, changes in net position, budgetary resources, and reconciliation of net costs to budgetary obligations, for the year then ended.

Issue Date: February 24, 2000
Audit Report No.: 00-FO-177-0001
File Size: 75KB

Title: Audit of the Government National Mortgage Association's Fiscal Year 1999 Financial Statements

This report presents the results of KPMG LLP's (KPMG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the year ended September 30, 1999. We concur with KPMG's opinion, that the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 1999 and results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.

In addition to KPMG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions with Ginnie Mae's internal controls, or material instances of non-compliance with laws and regulations. Furthermore, KPMG's assessment of Ginnie Mae's efforts to address recommendations from prior years indicated that, while some efforts are incomplete, the outstanding issues are not material to the financial statements, requiring reporting in the audit report. Instead, these outstanding issues are being reported separately to Ginnie Mae management.

We reviewed Ginnie Mae's process for developing and supporting performance measures included in the Overview and D&A sections of its annual report. Working with KPMG, we determined that the financial data presented with the performance measures were not inconsistent with the financial statements. Our review disclosed that for the financial performance measures assessed, Ginnie Mae complied with OMB requirements to document and support financial and statistical information presented in the D&A.

Issue Date: February 10, 2000
Audit Related Memorandum No.: 00-SF-123-0801
File Size: 49KB

Title: Limited Review - REO Division Operations

We conducted a limited review to evaluate the internal control procedures in place for disposing of HUD-acquired single family properties at: (1) the former HUD Los Angeles (LAAO) Real Estate Owned (REO) Division during the time that a scheme involving the sale of REO properties at well below the appraised value was perpetrated by a HUD housing specialist; (2) the Santa Ana Homeownership Center (HOC) REO Division and, (3) the Management & Marketing (M & M) contractor, Golden Feather. The purpose of the review was to determine the adequacy of the internal control procedures at LAAO that allowed the scheme to occur and whether adequate internal control procedures are in place at the Santa Ana HOC and Golden Feather to minimize the likelihood that the scheme could reoccur.

Issue Date: February 3, 2000
Audit Report No.: 00-BO-101-0801
File Size: 49KB

Title: Settlement Agreement With Creative Choice Homes, Inc. HA, City of Bridgeport, Bridgeport, CT

We are currently auditing the Housing Authority of the City of Bridgeport (Authority) and became aware of the subject agreement during our review of the Father Panik Village replacement status. In addition, certain payments made by the Authority to Creative Choice Homes, Inc. (CCH) are not in accordance with contract terms and conditions. We are issuing this memorandum in advance of our audit report to provide our recommendations to you so that corrective actions can be initiated. We are recommending that the Authority's request for $1.8 million in funds for a termination settlement of its contract with CCH not be approved. We also recommend that you require CCH to resubmit invoices supporting $881,680 of planning cost to comply with contract terms and conditions.

Issue Date: February 1, 2000
Audit Report No.: 00-AT-106-0801(Revised)
File Size: 1,332KB

Title: HUD's Approval of Noncompetitive Procurement, Public Housing Division, San Juan, Puerto Rico

Our recent review of the Puerto Rico Public Housing Administration (PRPHA) procurement procedures disclosed that HUD's approval of noncompetitive procurement for two multi-million dollar contracts was improper. On December 23, 1997, HUD's Public Housing Division authorized the PRPHA to execute a contract with Cardona, Irizarry & Co. for $9.6 million due to an emergency, and a contract with CVR Puerto Rico, Inc. for $4.4 million as sole source. Our review disclosed that the PRPHA's request to procure these contracts using noncompetitive method was not justified and did not include a cost analysis, which is mandatory, especially in these cases. Therefore, neither the PRPHA nor HUD had a basis to determine the reasonability of the contract costs. We questioned the reasonability of the charges under both contracts in the audit report on the review of the PRPHA procurement procedures.

We are issuing this revised memorandum to include HUD's comments. Excerpts from HUD's comments are included in the finding. Appendix A contains the complete text of the comments. The original memorandum was issued on November 15, 1999, under the same number.

Issue Date: November 30, 1999
Audit-Related Memorandum No.: 00-DP-166-0803
File Size: 16KB

Title: Review of the Department's Year 2000 Clean Management Procedures and Preparedness For the Millennium Rollover

We have completed a review of HUD's Year 2000 (Y2K) clean management effort and the Day One strategy for the millennium date change. We found that HUD's clean management policies are sufficient to provide controls to ensure that further changes would not threaten existing Y2K compliance. Clean management includes controls and procedures implemented by HUD to protect Y2K compliant program code and data from non-certified changes, thereby placing its Y2K compliance status in jeopardy. In addition, procedures are in place to recertify applications with major releases or changes that were made after initial Y2K certification.

Issue Date: November 8, 1999
Audit-Related Memorandum No.: 00-DP-166-0802
File Size: 14KB

Title: Year 2000 IV&V Review of HUDCAPS and A43C Claims Modules

Our office has completed a limited Independent Verification and Validation (IV&V) review of selected HUDCAPS and A43C Claims modules. We selected these two mission critical systems because HUDCAPS is the focal point for integrating all HUD financial systems and A43C provides on-line update and inquiry capability to Single Family Insurance and Claims data bases. We reviewed 56 programs containing 300,000 lines of code focusing on date intensive modules. The objective of our review was to determine if the modules would be able to process dates correctly in the year 2000 (Y2K). The programs were selected based on discussions with TEAM 2000/Certification group and Information Technology (IT) staff.

We found that the HUDCAPS selected modules were Y2K compliant. However, our review of A43 found that module A43TAA1, which contained statements with two digit year fields used in date calculations, would fail during the millennium transition. This program also contained a leap year routine that would fail after the year 2000. The IT staff researched this issue and corrected the two digit year problem. But the leap year problem remains. Even though the code would work in year 2000, it would fail for leap years 2004 and beyond. Since minimum resources are required to correct this problem, we recommend that you work with Housing to correct the module A43TAA1 so that the program would work for the leap years beyond year 2000.

Issue Date: November 4, 1999
Audit Report No.: 00-DP-166-0002
File Size: 677KB

Title: Audit Report of the Initial Development Efforts of the Departmental Grants Management System

We conclude that the initial DGMS development efforts are not cost effective. In particular, the "combined" development solution, selected from four technical alternatives in the DGMS feasibility study, was later abandoned in favor of the most costly and risky "custom" solution. The "combined" solution was to expand upon the software programs, developed to date from IDIS and from a system from another federal agency, called GATES. The switch to the "custom" solution has led to simultaneous development of two competing Departmental systems -- the existing IDIS and the replacement DGMS. This dual effort approach to grants management leads to higher development costs and greater risks of failure.

Issue Date: October 29, 1999
Audit Report No.: 00-DP-166-0001
File Size: 1,112KB

Title: HUD Information Technology Investment Practices

We found that HUD IT investment projects are below industry average in productivity and quality, management decisions are based on incomplete cost and schedule data, and project plans. In addition, contractor controls need improvement and monitoring of project progress is inadequate. The conditions found are due to the absence of a consistent approach to managing and controlling IT investment projects and failure to use industry accepted project management practices. HUD has not established 'Project Management', as a core competency to manage system development efforts.

Issue Date:October 14, 1999
Audit Memorandum No.: 00-FW-177-0801
File Size: 35KB

Title: Community Builder's Role in Phoenix Point Transitional Housing Alexandria HA, New Orleans, LA

Our review concluded that HUD's Senior Community Builder for New Orleans had inappropriately interfered with a Public Trust Officer's attempt to bring the Authority within compliance of its ACC. The Senior Community Builder's interference created an atmosphere of confusion to Authority and local government officials. As a result, the Authority did not know whose directions within HUD to follow. Without the Senior Community Builder's interference, the Authority may have resolved Phoenix Point within 1 month of the notification letter. To date, Phoenix Point remains unresolved. During our review, HUD's Director of Community, Planning and Development (CPD) attempted to impede our audit by denying that his office had any files pertaining to Phoenix Point. Another CPD employee had to provide the file on Phoenix Point.

Issue Date: October 6, 1999
Audit-Related Memorandum No.: 00-DP-166-0801
File Size: 19KB

Title: Housing Authorities' Year 2000 Readiness Activities

Our office has completed a limited review of the Year 2000 (Y2K) readiness activities at nine Public Housing Authorities (PHAs): Baltimore, Chicago, Dallas, Detroit, District of Columbia, Fort Worth, Omaha, New Orleans, and New York City. The objectives of our review were to determine whether: 1. The PHAs have established basic project management structures and procedures to ensure that potential Y2K problems will be prevented; and 2. Adequate steps have been taken to protect the health and safety of HUD program recipients from potential Y2K problems. The nine PHAs were selected because they are some of the largest PHAs nationwide and, therefore, pose the greatest risk to the health and safety of their tenants should Y2K failures occur. We interviewed PHA management and key Y2K project personnel. We also reviewed samples of documentation for Y2K project management, awareness, assessment, remediation, testing, and contingency planning. When appropriate, we provided the PHA management with Y2K educational material in the form of presentations and printed material to assist them in organizing and completing necessary corrective actions.

Issue Date: September 30, 1999
Audit Memorandum No.: 99-BO-199-0802
File Size: 310KB

Title: Implementation of the Real Estate Assessment Center's Physical Inspection Assessments

The purpose of our review was to assess the implementation of the Real Estate Assessment Center's (REAC) operations pertaining to physical inspection assessments. REAC provides assessments to help HUD monitor the properties in its public housing, subsidized housing and insured housing portfolios. We have identified two unresolved concerns and made three recommendations to strengthen REAC's implementation process.

Issue Date: September 30, 1999
Audit Report No.: 99-PH-163-0002
File Size: 133KB

Title: Internal Audit Follow-up Review of HUD Contracting

We performed an audit of the Department's contracting initiatives. Our objectives were to assess the affect of recent reform initiatives on the procurement process and to determine if the reform initiatives were providing adequate controls and safeguards against fraud, waste and abuse. The audit was undertaken to follow up on the corrective actions being taken in connection with the recommendations in our prior audit of HUD's contracting (97-PH-163-0001), dated September 1997.

Our review of the recently deployed HUD Procurement System (HPS) showed that substantial strides have been made in automating the Department's procurement data and establishing the necessary financial linkages to fully integrate HPS with HUD's core accounting system. Our analysis of HPS showed that the system was capable of providing detailed information for both headquarters and field office procurement actions and could track contract status from the advanced procurement planning stage through the request for contract services, solicitation, award, and post-award contract administration. Queries made through the system's standard reports module and its ad-hoc report generation tool showed that information was readily available and easily obtainable to assist day-to-day users and senior officials in managing procurement activity.

While the CPO's commitment to making the Department a model procurement agency is encouraging, we are not yet convinced that the Department's overall contracting attitudes and practices have changed significantly.

Issue Date: September 30, 1999
Audit Memorandum No.: 99-FO-101-0802
File Size: 403KB

Title: Survey of the Troubled Agency Recovery Centers (TARC) and Related Field Office Activities

As part of OIG's on-going reviews of the Department's progress in implementing HUD's 2020 Management Reform Plan, we completed a survey of the TARCs and activities at selected "Hub" and program center (PC) field offices. Our primary objective was to review the TARCs' procedures for processing troubled Public Housing Authorities (PHA) to determine whether the TARCs are effective in improving troubled PHAs' performance levels. As a secondary objective, we reviewed the Hub/PCs' overall PHMAP process to determine if all troubled PHAs were properly identified and forwarded to the TARCs for processing.

The TARCs continue to operate well below the operating capacity for which they were established in Fiscal Year 1998 under HUD's 2020 Management Reform Plan. The Public Housing Management Assessment Program (PHMAP), currently being used by the Department to identify troubled PHAs, does not generate a sufficient number of PHAs to fully employ or justify existing TARC staffing levels, nor do Hub/PC offices always effectively identify PHAs that may/should be designated as troubled and forwarded to the TARCs for processing. As of August 1999, the TARCs had 52 troubled PHAs with 22,112 units in their inventory, and had assumed the servicing responsibilities for 4 non-troubled PHAs with 15,475 units. This represents only 2 percent of the estimated 3,300 PHAs managing 1.3 million units nationwide. Furthermore, we are concerned the Department has not been able to quantify the number of PHAs the new Public Housing Assessment System (PHAS) will classify as troubled in Fiscal Year 2000, and whether all these PHAs will be assigned to the TARCs for processing. TARC staffing levels were set based on the assumption that implementation of PHAS would result in identification of 575 troubled PHAs.

Generally, we found the TARCs were developing strategies that improved the PHAs' ability to increase their PHMAP scores to the extent that their designation will be changed from a troubled to either a standard or high performer. However, the TARCs' strategies and processing procedures do not always identify and address all pertinent management and operational deficiencies troubled PHAs need to correct to improve performance on a sustainable basis. Furthermore, we found the TARCs current procedures for processing troubled PHAs do not always comply with the Housing Act and PHMAP regulations. Specifically, the TARCs do not always (1) timely obtain independent assessments for troubled PHAs transferred from the Hubs; (2) complete independent assessments before on-site evaluations and Memoranda of Agreement (MOA)/Recovery Plans are completed; and (3) prepare comprehensive MOA/Recovery Plans that address all operational and management issues.

Issue Date: September 30, 1999
Audit Report No.: 99-DP-166-0004
File Size: 597KB

Title: Audit Report of HUD's Efforts to Correct Year 2000 Problems (Phase III)

Our review found that while the Department has reported completion of Y2K renovation and certification of all mission critical systems, a number of weaknesses remain. First, the supporting Y2K contingency plans have not been fully developed and tested. Second, HUD's Data Center has not performed sufficient testing of system software for Y2K compliance. Third, critical HUD Headquarters building systems have not been Y2K certified. Fourth, HUD has not taken steps to ensure data exchanges between mainframe and personal computers will yield correct results in the Year 2000. Finally, one of four mission critical systems reviewed, Loan Accounting System (LAS), lacked sufficient basis to verify Y2K certification.

In the Department's September 1, 1999 response to the draft report issued on July 7, 1999, HUD did not agree with a number of recommendations. Had HUD initiated action to implement these recommendations prior to September 1, the risks of Y2K failures would have been greatly reduced. However, with less than 100 days left until the Year 2000, there is now insufficient time to implement these recommendations. Since the Department is accepting a higher degree of risk than necessary, it is more prudent for HUD to spend the remaining time preparing for Y2K failures. This effort should also ensure that the associated risks for not implementing the recommendations are addressed and mitigated in the Y2K contingency plans.

Since formal recommendations are not included in this report, we do not expect a response from the Department. However, we are issuing this report to alert HUD management of continued Y2K risks.

Issue Date: September 30, 1999
Audit Report No.: 99-FW-177-0002
File Size: 439KB

Title: Nationwide Audit Community Builders

We performed a nationwide audit of the Community Builders to evaluate their hiring, functions, responsibilities, and their impact on other organizations within HUD. The audit included reviews in Headquarters; Boston, Massachusetts; Denver, Colorado; Detroit, Michigan; Fort Worth, Texas; Houston, Texas; Knoxville, Tennessee; Los Angeles, California; New Orleans, Louisiana; New York, New York; Richmond, Virginia; and Seattle, Washington. The audit found problems with the Community Builder concept, its implementation, and its impact on HUD.

This audit is part of the Inspector General's continuing reviews of HUD's 2020 Management Reform Plan, but it also responds to requests from members of Congress and numerous citizen complaints. The audit found problems with the Community Builders' concept, its implementation, and its impact on HUD.

The audit disclosed that HUD did not properly plan or implement the Community Builder function. The Department may have inappropriately used Schedule A hiring authority to hire the Community Builder Fellows and violated requirements of the selection process. To establish the Community Builder position, HUD had to allocate salary, training, and travel dollars, as well as personnel, from its monitoring and enforcement role - at a time the Department was already significantly decreasing its workforce. This allocation contradicts one of the primary goals of the Community Builder function, which was to allow HUD personnel assigned to the monitoring and enforcement roles to better perform their jobs. In order to maintain Community Builders, HUD will have to continue spending at high levels to pay and train each successive Fellows class. HUD cannot recover the personnel positions lost to Community Builders without an increase in funding. The impact of Community Builders is difficult to measure, when measurable. The one clear effect of the Community Builders is the dramatic increase in the number of people at HUD not part of a specific program, engaged in customer relations, and owing their jobs to the Department's political management.

Issue Date: September 30, 1999
Audit Memorandum No.: 99-FW-177-0803
File Size: 49KB

Title: Community Builders' Role In Multifamily Property Disposition Multifamily Housing Property Disposition Center Fort Worth, Texas

During our nationwide review of Community Builders, the Fort Worth Property Disposition staff expressed concerns regarding the involvement of Community Builders in disposing of HUD property. The staff named seven properties. We decided to review those concerns and determine whether Community Builders had inappropriately intervened with the property disposition process. To accomplish the objective, we reviewed documents regarding the disposition of five properties and interviewed applicable HUD staff and local officials. The review covered the respective periods HUD held each property in its inventory. The properties were: Crest A in Dallas, Texas; Pebble Creek in Arlington, Texas; two Jeff-Vander-Lou properties in St. Louis, Missouri; and Kenilworth in Portland, Oregon.

Our review of five properties disclosed that in three cases Community Builders did inappropriately interfere in HUD's disposition of the property. In the three cases, a Community Builder intervened and placed inappropriate pressure on multifamily housing officials. As a result of the Community Builder interference, HUD spent more than $4.7 million in holding costs or lost sales proceeds. In one instance, HUD sold a property that it had invested $17 million to a nonprofit for $10.

Issue Date: September 30, 1999
Audit Report No.: 99-DE-121-0001
File Size: 375KB

Title: Department of Housing and Urban Development's Loss Mitigation Program

We performed a nationwide audit of HUD's Single Family Loss Mitigation Program to determine the program's effectiveness at keeping families in their homes and reducing foreclosures, as well as to evaluate the risks associated with the program. Our audit work included comprehensive reviews at four large servicing mortgagees, the Single Family Claims Branch, and the National Servicing and Loss Mitigation Division. Our audit work also included limited reviews at four small servicing mortgagees, HUD's Quality Assurance Division located in Headquarters and within the four Home Ownership Centers.

According to our analysis of HUD data, FHA has insurance in force for 6,235,000 single family dwellings, totaling over $475 billion. The four large mortgagees reviewed during our audit serviced 1,736,875 insured loans or 27 percent of FHA's insured loan portfolio. From October 1996 through May 1999, HUD paid 18,609 loss mitigation claims for the three home retention tools. The four mortgagees we reviewed were paid for 11,349 of these claims, or 61 percent, of the total claims paid.

We could not determine at the time of our audit whether FHA's Loss Mitigation Program will ultimately reduce foreclosures and keep families in their homes, because the majority of the loss mitigation activities have occurred within the last year and are currently in process. However, we did identify significant weaknesses within the program that could seriously impact the program's effectiveness. The audit identified weaknesses in the following areas: incentive claim payments; monitoring and oversight of servicing mortgagees; and default status reporting. HUD needs to initiate corrective action in these areas to ensure the program is carried out more effectively and that the mortgage insurance fund is protected against unnecessary losses.

Issue Date: September 17, 1999
Audit Report No.: 99-AT-123-0001
File Size: 2516KB

Title: Single-Family Property Disposition Program

In March 1998, the General Accounting Office (GAO) reported on FHA's Property Disposition Program. GAO concluded that FHA did not have adequate controls in place to oversee its Real Estate Asset Management (REAM) contractors and that property conditions were deteriorating.

Our audit disclosed no improvement in program operations since GAO's report. Subsequent to field consolidation, inventory increased, sales to homeowners declined, age and condition of FHA properties deteriorated, revenue was lost, and holding costs increased. FHA continued to have poor control over its REAM contractors. Because of staff shortages caused by the reorganization, FHA management issued emergency contracts, and placed temporary, inexperienced, and/or untrained HUD staff in property disposition jobs. The effort did not overcome the problems. FHA received numerous reports of non-performance by REAMs, but took little enforcement action because it had no system to record, track, or quickly respond to these reports.

Issue Date: August 27, 1999
Audit-Related Memorandum No.: 99-DP-166-0003
File Size: 28KB

Title: Review of the Department's Overall Year 2000 Business Process Continuity Contingency Plan and Supporting Year 2000 Contingency Plans

Our office has completed our review of the Department's overall "Year 2000 Business Process Continuity Contingency Plan and Supporting Year 2000 Contingency Plans." The overall plan includes 30 supporting plans for core business functions. We found that the Department did not follow the General Accounting Office's (GAO) and industry accepted standards in developing the plans. We also found that many of the plans lack clarity and detail and show no evidence of coordination with the other program areas or operations staff. Additionally, a review of HUD's contingency plan testing efforts disclosed that over a third of the supporting plans will not be tested. Several contingency plans either did not meet their scheduled test completion dates or do not have a test completion date. Also, approximately a third of the plans have not been updated since April 26, 1999 although updates are required quarterly. Lastly, we noted that the current testing schedule for those plans to be tested showed completion dates may not provide enough time for HUD to correct and revalidate their contingency plans before the Year 2000 (Y2K).

Issue Date: August 25, 1999
Audit Report No.: 99-FW-111-0802
File Size: 29KB

Title: Enforcement of Compliance Agreement with Herbert J. Zieben and H.J.Z., Inc.

HUD Multifamily staff are not taking action to enforce the Compliance Agreement. Multifamily staff tasked with enforcing the agreement did not take action for several reasons: 1.) they were not reviewing the reports submitted by Mr. Zieben; 2) they were not aware of the Compliance Agreement; and 3) they assumed it was OIG's responsibility to enforce the agreement. As a result, Mr. Zieben made payments totaling over $3.1 million to his identity-of-interest companies. In addition, transfers of funds totaling $350,000 have occurred out of one property that had minimal surplus cash available.

Issue Date: July 9, 1999
Audit Report No.: 99-KC-113-0001
File Size: 116KB

Title: Security Costs of MultiFamily Property Disposition Properties (Multi-Location)

Neither HUD nor its Property Management contractors established a means of determining the level and type of security needed at the Multifamily Property Disposition properties. HUD and the Property Management contractors assumed all properties needed high levels of security when HUD first took control of them. As a result, HUD spent more than $38 million on security services without assurance that the levels and types of security were appropriate.

Issue Date: June 18, 1999
Audit-Related Memorandum No.: 99-SE-121-0802
File Size: 72KB

Title: Confidential Complaint - Appraiser Selection for FHA-Insured Single Family Properties Anchorage, Alaska

We found that the complainant's allegation was credible in that lenders were selecting appraisers recommended by real estate agents. While HUD regulations require lenders to select and be responsible for the work of single family property appraisers, the regulations do not prohibit lenders from selecting appraisers recommended by real estate agents. However, the results of our limited review of loan files were inconclusive and did not disclose definite patterns or relationships between real estate agents, appraisers, underwriters, or loan processors. Also, we could not determine whether or not lenders were losing business if they chose an appraiser other than the one a real estate agent recommended.

Issue Date: June 1, 1999
Audit-Related Memorandum No. 99-PH-202-0801
File Size: 39KB

Title: Receivership Chester Housing Authority Chester, Pennsylvania

We have completed a review of selected operations of the Chester Housing Authority (CHA). The CHA has been operating under court appointed receivership since 1994, and the Receiver and the current CHA staff have made substantial progress in improving the CHA's operations. This memorandum addresses the CHA receivership and discusses the issues of: 1) the need for continuing the receivership, 2) the degree of Receiver services still required by the CHA, and 3) whether a receivership fee adjustment is warranted due to reduced services by the Receiver. Considering our review, we are recommending that HUD, in concert with the Receiver and CHA, identify the areas of CHA operation that still need the Receiver's attention and effect a plan , with time frames, to raise CHA performance to acceptable levels in these areas. Upon successful completion of the plan, HUD would petition the court to terminate the receivership.

Issue Date: March 31, 1999
Audit-Related Memorandum No.99-SE-148-0801
File Size: 1,168Kb

Title: Section 108 Loan Guarantee Program

We completed reviews of complaints on two Section 108 projects in Washington State. In the process of reviewing the allegations in the complaints and the relevant HUD requirements, we identified opportunities for improvement in the Section 108 program which we want to bring to your attention. Addressing these opportunities may help to further the Department's missions under the HUD 2020 Management Reform Plan of empowering people and communities, and restoring the public trust. The opportunities we identified relate to the following categories of HUD requirements or topics:

• citizen participation,
• displacement of businesses and jobs,
• presumption alternative for meeting a national objective,
• timeliness of HUD approval of Section 108 loan guarantee,
• assistance to grantees on environmental requirements,
• excess profits to for-profit businesses,
• disclosure of information by applicants,
• citizen concerns and misconceptions about the Section 108 program, and guidance on how an activity can qualify under the spot blight national objective.
  

Issue Date: March 30, 1999
Audit Report No. 99-CH-156-0001
File Size: 221Kb

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

We completed a multi-location audit of the Office of Community Planning and Development's oversight of the Empowerment Zone Program. The objective of our audit was to determine whether HUD has an effective system for oversight and control of the Program. We performed the audit based upon our Fiscal Year 1998 annual audit plan. The audit was conducted at HUD Headquarters, four Empowerment Zones, and HUD's State Offices of Community Planning and Development having jurisdiction for the four Zones we reviewed. The four Zones were Atlanta, Chicago, Detroit, and Philadelphia.

We concluded that HUD did not have an adequate system of oversight and control for the Empowerment Zone Program. HUD did not effectively assess the progress and status of the Empowerment Zones. The Headquarters' EZ/EC Team did not confirm the appropriateness of the use of Empowerment Zone funds, nor did it confirm that the use of funds complied with the Cities' Strategic Plans. The Team also did not ensure that Performance Reviews submitted by the Cities were verified for accuracy. As a result, HUD did not detect that Empowerment Zone resources were not always efficiently and effectively used, and the impression exists that the benefits of the Empowerment Zone Program were greater than actually achieved.

Issue Date: March 29, 1999
Audit Memorandum No: 99-FW-155-0801
File Size: 21KB

Title: City of Houston, Texas, Homebuyers Assistance Program (funded by the HOME Program)

During our audit of the City of Houston's HOME Program, we found two weaknesses in the HOME Program regulations. First, Houston provided assistance to homebuyers who did not need help to purchase a home. Second, in the case of non-competitively procured subrecipients, non-financial conflicts of interest can occur that are detrimental to HUD.

Issue Date: March 26, 1999
Audit Report No: 99-SF-11-0801
File Size: 69KB

Title: Corrective Action Verification Multi-Region Audit of Section 236 Program Excess Rental Income Collections - Audit Report No. 95-SF-111-0001

We found that HUD did not satisfactorily implement 11 of the 17 audit recommendations. Therefore, we are reopening recommendations contained in Finding 2 (2A, 2B, 2D, 2E, 2F, 2G) and Finding 3 (3A, 3B, 3C, 3D, and 3E). The reported deficiencies that prompted those audit recommendations have not been corrected. In fact, the uncollected reported excess income increased from almost $15 million reported in the report to over $18 million at the time of this CAV. Further, the numbers of missing excess income reports increased from about 10,000 to nearly 14,000, so it is likely that unreported excess income has also increased. The agreed upon recommendations, if implemented, would have decreased both amounts in our original report. Officials at all four field offices and Headquarters, where we performed the CAV, attributed the lack of action to staffing changes associated with HUD's reorganization.

Issue Date: March 25, 1999
Audit Report No: 99-DP-166-0002
File Size: 373KB

Title: Review of HUD's Efforts to Correct Year 2000 Problems (Phase II)

This report is the second review we performed as part of the OIG's continuing oversight of HUD's Y2k initiative. We evaluated project management oversight of six highly critical applications to determine if the detailed project work and test plans, and the testing and certification processes followed Departmental guidelines and industry accepted best practices to minimize the impact of Y2k date problems. In our first audit report (98-DP-166-0003 dated June 1, 1998), we emphasized the need for a senior official to be involved with the management and coordination of Y2k activities. We also stressed the need to adopt an automated configuration management program to control software changes made to correct the Y2k date problems. The results of our current work have shown an even greater need to address these two areas.

The Department has agreed that software configuration management is a high priority item but has recognized and accepted the risks for not fully implementing an automated configuration management tool for all of HUD's platforms. The Department intends to implement the automated tool when resources become available, possibly after the Y2k renovation work is completed. HUD is committed to performing Y2k renovation, certification, and testing for all applications and the process has been in place for some time. However, there are weaknesses in all three areas. In particular we are concerned with weak controls over testing. Experience has shown that Y2k testing is consuming between 50 to 70 percent of a project's time and resources. The weaknesses exist because the Y2k Project Office is not functioning at a high enough level with sufficient authority to ensure best practices and standards are followed.

Although the recent involvement of the CIO in coordinating the Y2k effort is a positive step, more needs to be done to provide accountability for the Y2k project and operations. There is a continued need for a senior level manager, such as the CIO, to provide the necessary leadership and accountability over the Office of Information Technology (IT) operations. Currently, the CIO has no direct authority over HUD's IT and contractor personnel performing Y2k work. A senior official with sufficient authority would ensure that everything possible is done to minimize the risk of Y2k failures. In our first report (98-DP-166-0003), we recommended that the Department place the Office of IT within the Office of the CIO. However, the Department decided not to implement this recommendation.

Issue Date: March 29, 1999
Audit Report No: 99-FO-177-0003
File Size: 701 KB

Title: Audit of the U.S. Department of Housing and Urban Development Fiscal Year 1998 Financial Statements

In accordance with the Chief Financial Officers (CFO) Act of 1990, this report presents the results of our audit of HUD's principal financial statements for the year ended September 30, 1998. Also provided are assessments of HUD's internal controls and compliance with laws and regulations. HUD continues to face major challenges in its efforts to correct longstanding material internal control weaknesses that are hindering its ability to carry out its mission and improve program management. In particular, HUD needs to overcome issues with its internal control environment, including the need to upgrade financial systems and address resource issues. Our report discusses the significance of HUD's financial management and control problems and HUD's actions to correct them. Our report also contains recommendations to assist the Department in its continuing efforts to correct these longstanding problems.

We also identified several matters which, although not material to the financial statements, will be communicated in a separate management letter to the Department. That letter will also provide additional details on some of the internal control weaknesses described in this report. We appreciate the courtesies and cooperation extended to the OIG staff and our contractor.

Issue Date: March 12, 1999
Audit Report No: 99-FO-131-0002
File Size: 6,750 KB

Title: Audit of the Federal Housing Administration Audit of Fiscal Year 1998 Federal Basis Financial Statements

We have audited the accompanying consolidated balance sheet of the Federal Housing Administration (FHA) as of September 30, 1998, and the related consolidated statements of net cost and changes in net position, the combining statement of budgetary resources, and the combined statement of financing (hereinafter collectively referred to as "financial statements") for the year then ended. The objective of our audit was to express an opinion on the fair presentation of FHA's 1998 financial statements. In connection with our audit, we also considered FHA's internal control over financial reporting and tested FHA's compliance with certain provisions of applicable laws and regulations that could have a direct and material effect on its financial statements.

In our opinion, FHA's financial statements as of and for the year ended September 30, 1998, are presented fairly, in all material respects, in conformity with the hierarchy of accounting principles and standards recommended by the principals of the Federal Accounting Standards Advisory Board. This hierarchy is a comprehensive basis of accounting other than generally accepted accounting principles.

As a result of our consideration of internal control over financial reporting, we noted reportable conditions in the following seven areas, the first four of which we also considered material weaknesses:

• Addressing staff and administrative resource issues,

• Placing more emphasis on early warning and loss prevention regarding the insured portfolio,

• Improving federal basis and budgetary accounting,

• Improving technology systems in order to support business processes more effectively,

• Resolving Secretary-held mortgage notes and minimizing additional mortgage note assignments and note servicing responsibilities,

• Monitoring and accounting for single family property inventory, and

• Enhancing the design and operation of information systems general and application controls.

Regarding our tests of compliance with certain provisions of laws and regulations, we noted noncompliance with data and accounting requirements of the Credit Reform Act of 1990.

Date Issued: March 5, 1999
Audit Report No. 99-FO-171-0001
File Size: 126KB

Title: Audit of the Government National Mortgage Association's Fiscal Year 1998 Financial Statements

This report presents the results of the KPMG LLP's (KPMG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the year ended September 30, 1998. We concur with KPMG's opinion, that the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 1998 and results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.

Audit Scope and OMB Audit Requirements

This audit was performed pursuant to the requirements of the Chief Financial Officers Act and Office of Management and Budget (OMB) Bulletin 98-08, Audit Requirements for Federal Financial Statements. To complete this audit, we contracted with the independent certified public accounting firm of KPMG. We approved the scope of the audit work, monitored its progress at key points, reviewed their working papers, and performed other procedures we deemed necessary. OMB's audit requirements in Bulletin 98-08, as amended, exceed Government Auditing Standards, primarily in three areas.
These relate to:

� expanding the review of Ginnie Mae's internal controls,
� reviewing performance measures contained in Ginnie Mae's annual report, and
� reporting under the Federal Financial Managers Improvement Act (FFMIA) of 1996.

To address the first additional OMB requirement, we engaged KPMG to expand their review of Ginnie Mae's internal controls. The section discussing internal controls presents the results of this work. To address the second additional requirement, the Office of Inspector General (OIG) performed the procedures required by OMB Bulletin 98-08. With respect to FFMIA, the reporting requirements do not apply to the Ginnie Mae audit, but will be reported at the HUD consolidated level.

Results of KPMG's Audit

In addition to KPMG's unqualified opinion on Ginnie Mae's financial statements, the audit results indicate that there were no material weaknesses or reportable conditions with Ginnie Mae's internal controls, or material instances of non-compliance with laws and regulations. Furthermore, KPMG's assessment of Ginnie Mae's efforts to address recommendations from prior years indicated that, while some efforts are incomplete, the outstanding issues are not material to the financial statements, requiring reporting in the audit report. Instead, these outstanding issues are being reported separately to Ginnie Mae management.

OIG Review of Ginnie Mae's Performance Measures

Ginnie Mae's performance measures are incorporated in both the "Overview" and "Management's Discussion and Analysis of Financial Position and Results of Operations" (D&A) sections of Ginnie Mae's Fiscal Year 1998 annual report prepared under the requirements of the CFO Act. In accordance with OMB Bulletin 98-08, we obtained an understanding of certain aspects of Ginnie Mae's internal controls and assessed control risk relative to the policies and procedures adopted by management to provide reasonable assurance that data supporting reported performance measures are properly recorded and accounted for to permit preparation of reliable and complete performance information.

For purposes of this report, we classified the significant D&A internal control policies and procedures relative to the production of performance measures into the following categories:

• Operations
• Risk Management
• Liquidity and Capital Adequacy
  

We reviewed Ginnie Mae's process for developing and supporting performance measures included in the Overview and D&A sections of its annual report. We noted that for some performance measures, the data used were as of periods prior to the end of the fiscal year because this was considered by Ginnie Mae to be the best available information. In addition, working with KPMG, we determined that the financial data presented were not inconsistent with the financial statements. Our review disclosed that for the financial performance measures assessed, Ginnie Mae complied with OMB requirements to document and support financial and statistical information presented in the D&A.

In prior years, we have reported that Ginnie Mae needs to build on efforts already completed to improve performance measures. Currently, Ginnie Mae's senior management has developed performance measures in support of the Secretary of Housing and Urban Development's Strategic Plan for fiscal years 1998-2003 to comply with current guidance under the Government Performance and Results Act. Ginnie Mae also developed four measures or indicators for HUD's fiscal year 1999 Annual Performance Plan to achieve the HUD goal to "Maintain liquidity in the market for mortgage credit."

Comments of Ginnie Mae Officials

On February 26, 1999 we provided a draft of KPMG's report to Ginnie Mae officials for their review and comment. The draft was subsequently discussed with Ginnie Mae officials. Ginnie Mae largely agreed with the results of the audit. Ginnie Mae's comments were considered in developing the final version of this report.

Issue Date: February 1, 1999
Audit Report No.: 99-DP-166-0001
File Size: 69KB

Title: Commercial Credit Card Program

We completed an audit of the agency's commercial credit card program used for the procurement of goods and services. The objective of our audit was to determine if the agency's credit card program was effective and efficient and had adequate internal controls to ensure that credit card purchases were authorized and made for official purposes. Our audit concluded that the credit card program is effective in reducing administrative time and costs associated with more formal procurement methods. Program efficiency, however, needs to be improved and the agency's internal controls over the credit card transactions are weak. Approximately 43 percent of our sampled cardholder billing statements, which support credit card invoice payments, lacked assurance that credit card purchases were properly authorized and made for official purposes. As a result the credit card program is subject to fraud, waste, and abuse.

Issue Date: January 8, 1999
Audit Report No. 99-B0-101-0001
File Size: 163KB

Title: Multi-District Audit - Public Housing Drug Elimination Program

We conducted a multi-district audit of the Public Housing Drug Elimination Program (PHDEP) encompassing fiscal years 1994 through 1997 which included the review of selected grantees' PHDEP Programs for fiscal years 1994 through 1996. The purpose of our review was to determine if grantees are effectively administering their Programs, and if the Department is accurately measuring Program accomplishments to assure its primary goal is achieved. The report's two findings address the need for grantees to ensure better administration and accountability of grant funds, and the need for HUD to have reliable data to measure program effectiveness.

Issue Date: December 17, 1998
Audit Report No. 99-FW-101-0001
File Size: 474KB

Title: Nationwide Audit HOPE VI Urban Revitalization Program

We performed a nationwide audit of the HOPE VI Urban Revitalization Program to determine whether the program effectively, efficiently, and economically addresses the needs of severely distressed public housing. The audit work included comprehensive reviews at ten housing authorities and HUD Headquarters. Although some of the authorities had only made minimal progress, for sites where the physical revitalization was completed, the transformation was impressive. The audit found problems with HUD's monitoring and administration of the program. While HUD has already begun to take corrective action in some areas, HUD needs to complete planned actions and initiate other actions in problem areas not yet addressed.

Date Issued: November 10, 1998
Audit Report No. 99-PH-156-0001
File Size: 109KB

Title: Internal Audit, Youthbuild Program, Multiple Location Review

We performed an audit of the Department's administration of the Youthbuild Program (Program). Our objectives of the audit were to determine if HUD: (1) awarded Youthbuild implementation grants in accordance with regulations, and (2) adequately monitored grant recipients for compliance with program regulations.

We reviewed seven recipients, including the six largest recipients in the nation, who received a total of $17 million in implementation grants in the first three years funds were awarded. We found evidence of very successful and efficient programs and others that were not very effective. For example, during the 1993 grant year, Philadelphia Youthbuild had 47 of 48 students earn their high school diplomas at an average cost of $21,109, while Durham and Baltimore only had 14 students and 6 students earn their GED's at average costs of $71,280 and $165,921, respectively.

The auditee generally agreed with program recommendations and has taken steps to incorporate these recommendations in their 1998 grant awards. However, it should be noted the auditee strongly disagreed with OIG's presentation of Youthbuild results.

Specifically, the auditee indicated that every Youthbuild program is unique and there are many intangible outcomes that cannot be adequately measured, and therefore it is unfair to compare results among recipients. The auditee further felt the above chart presentation was inappropriate because attainment of a high school diploma or GED is not a program requirement.

While we agree there could be many intangible benefits to a Youthbuild program, we do not agree that it is unfair to quantify and compare a recipients performance with regard to the number of students earning their high school diplomas or GED's and the number of homes rehabilitated. We believe students earning their high school diploma and GED's, while not a program requirement, are important measures of a recipient's ability to foster permanent change in a participants future, and goes to the very core of the programs objectives.

Basically, because of HUD's lack of monitoring or assessment, the Department has gathered very little accurate or verified data of results for over $130 million of grant funds awarded. Additionally, our review determined grant recipients are not adequately maintaining follow up participant tracking information and are not able to support much of the participant information reported to HUD (APPENDIX A). Considering the fundamental program objective of Youthbuild is to provide young adults with educational and employment opportunities, accurate follow up participant tracking is a critical measure of the program's success.

Our review disclosed HUD needs to improve its overall administration of the Youthbuild program. Specifically, HUD did not adequately: review and rank Youthbuild applications; or perform necessary monitoring of Youthbuild recipients. Deficiencies we noted included:

* rating elements were not scored consistently for four of 12 applications;
* an applicants demonstrated past performance was not adequately considered in the rating process; and
* grantee recipients did not maintain adequate documentation to support financial accountability, compliance with program regulations, and program performance.

The Acting Director, Office of Economic Development stated that oversights made in the rating and ranking of applications caused the scoring errors, and that the selection process did not consider an applicant's past performance unless it was included as part of their next application. Additionally, the Acting Director, Office of Economic Development stated HUD relied heavily on recipient certifications and independent accountant reports, as there was not sufficient staff resources to implement a monitoring program. As a result, HUD has obligated Program funds without establishing adequate performance standards relative to the program objectives and amount of funding provided.

We recommend that HUD: incorporate prior performance evaluation reports and progress reports into the application review process resulting in a more accurate representation of a recipient's demonstrated qualifications and experience; perform an independent quality review of applications to ensure applicant rating sheets are mathematically correct and objective rating elements have been scored consistently among applicants; create an automated database to monitor a recipients accomplishments relative to program objectives; and implement a proactive on-site monitoring program that focuses on a recipients financial accountability and program performance.

While this report contains only one finding, substantial improvement is needed in HUD's administration of the Youthbuild program to ensure future resources are used more efficiently. It should be noted that the report details deficiencies in virtually all areas of the Youthbuild program, to include selection of applicants for participation, accounting for costs, and fulfillment of the Program objectives. We believe HUD's plan to transfer some monitoring responsibility to local HUD offices is a positive step towards strengthening recipient financial and performance accountability.

Issue Date: September 30, 1998
Audit Report No. 98-DP-166-0004
File Size: 267KB

Title: Controls Over Single Family Acquired Asset Management System

We conducted a review of application and general controls related to the Federal Housing Administration (FHA) Single Family Acquired Asset Management System (SAMS). This audit was conducted at the request of the FHA Comptroller's office to determine whether SAMS is a reliable system for property disposition. KPMG Peat Marwick, LLP, provided audit support for this review. The reliability of SAMS is an essential element in supporting the annual FHA financial statement audit required by the Chief Financial Officers Act. SAMS processes and controls the disposition of single family properties worth millions of dollars.

The review disclosed a number of deficiencies in SAMS that render the system ineffective for managing and controlling the inventory of properties undergoing disposition. The most serious weakness is that SAMS does not have adequate controls in recording and tracking property disposition obligations and expenditures. As a result, the FHA is exposed to fraudulent and/or duplicate payments for purchases. We also found SAMS cannot be relied upon for making management decisions because of the poor data quality and exposure to unauthorized access.

Issue Date: April 16, 1998
Audit-Related Memorandum 98-SE-107-0807
File Size: 162KB

Title: Northwest Office of Native American Programs, Oversight of Southern Puget Sound Inter-Tribal Housing Authority, Seattle, Washington

On November 29,1996, OIG received a request from the Secretary of HUD to thoroughly review allegations of various improprieties in the use of HUD funds by Tribal governments and/or Indian housing authorities (IHAs) and inadequate monitoring by HUD's Office of Native American Programs (ONAP). Program abuse at IHAs across the country was alleged in The Seattle Times' December 1996 series of articles entitled "From deregulation to disgrace" which identified 29 instances. The series included allegations that a $1.2 million housing grant to the Southern Puget Sound Inter-Tribal Housing Authority bought a polluted, unusable piece of property and built a large home for the tribal chairman.

Audit Objective, Scope and Methodology

As part of our review to address the Secretary's request, we wanted to know if the Northwest Office of Native American Programs (NWONAP) provided effective oversight of the Southern Puget Sound Inter-Tribal Housing Authority (IHA).

To accomplish this, we:
* reviewed The Seattle Times series.
* contacted the NWONAP Administrator to obtain:
* a perspective and position on the issues reported in The Seattle Times series for the IHA, * a description of the program requirements applicable to the IHA, and
* a description of actions taken by NWONAP in relation to the issues reported in the series for this IHA.
* obtained and reviewed applicable program requirements including statutes, regulations, handbooks, guidebooks, memoranda, and other directives.
* interviewed appropriate staff, and reviewed available documentation related to oversight. The review included testing of the management information and control systems to obtain an understanding of how those systems functioned.
* compared the oversight and actions taken by the NWONAP to the applicable requirements.

We performed our field work from February through April 1997, and extended our work as necessary to accomplish our objective. This work was a part of the work done to address the Secretarial request discussed above. This memorandum includes specific recommendations that were not within the scope of the audit report responding to the Secretarial request (Report 98-SE-107-0002).

Audit Results

Our review disclosed that NWONAP oversight of the IHA did not ensure development requirements were met. A required environmental review was not obtained prior to releasing funds for purchase of a commitment to provide a leasehold and Low-rent funds were permitted to be used as Mutual Help funds. As a result:

* The IHA spent $205,000 for a commitment to enter into a leasehold on a polluted site that cannot be used to develop the planned ten units of Low-rent housing until another $468,000 is spent to remove the contaminates. Also, the IHA spent an additional $31,235 to identify and remove a portion of the hazardous pollutants from this land even though a leasehold had not been obtained.

* The IHA sold houses developed with Low-rent development funds to Tribal members for $531,7291 less than the $749,295 it cost to develop them. Accordingly, the ten intended Low-rent units were not developed. Also, the Tribal Chairman, who was not low income and not eligible for the Low-rent program, benefited from the IHA's action, receiving a 2,100 square foot, $176,405 custom two story home that he lived in without making any payments for the first 11 months.

Required Environmental Review Not Obtained

Federal regulations at 24 CFR 50, and HUD Handbook 7450.1 state that HUD is responsible for completing an environmental assessment prior to expending other than planning funds on a project. These requirements are reiterated in HUD Development Handbook 7450.1, REV-1.

NWONAP did not complete an environmental review before permitting the IHA to advance the Tribe $205,000.

On December 22, 1993, the IHA requested $205,000 of its $1.2 million Low-rent development grant to purchase a leasehold on a proposed housing site for 10 of the 30 units included in the grant. The approved development plan allocated these ten units to the Shoalwater Bay Indian Tribe. On December 27, 1993, NWONAP approved the $205,000 disbursement to the IHA subject to five conditions, one being that HUD would complete its environmental review. The IHA did not meet these five conditions before paying the $205,000 to the Shoalwater Bay Indian Tribe for the leasehold. Also, the NWONAP did not question the IHA's use of the funds even though HUD had not completed the required environmental review.

The polluted site cannot be used to develop the needed ten units of Low-rent housing until contaminates are removed.

In 1997, the Environmental Protection Agency determined that the site cannot be used for housing until contaminates are removed at a cost of about $468,000. Prior to the Environmental Protection Agency review the IHA had obtained a level two environmental review at a cost of $25,373 which identified chemical and petroleum hazards, and paid $5,862 to a contractor for removal of some of the contaminates. Also, the property cannot be placed in trust because of the pollution. Accordingly, the Tribe could not provide the IHA a leasehold and had not provided a written commitment to provide a leasehold. (We noted that the IHA advanced the funds to the Tribe in exchange for a commitment to provide a leasehold. As of July 1997, the IHA has not yet received a leasehold on the land.)

NWONAP's Director of Development, who was aware of the requirements, placed a higher priority on starting the Low-rent development project than on ensuring the site was environmentally safe.

The Director of Development (at the time) stated that he approved the disbursement although he knew that an environmental review should have been done. He stated he approved the disbursement without doing the required review for several reasons. First, the IHA had been trying for three years to obtain an approved site and had unsuccessfully attempted to purchase three sites. Second, NWONAP assumed the land could be (and needed to be) quickly purchased and placed into trust and that all parties were unaware of any items which would impede the process.

Low-rent funds were permitted to be used as Mutual Help funds.

The regulations at 24 CFR 950.455 state that an IHA may apply to the HUD Area ONAP for approval to convert any or all of the units in an existing rental project to the Mutual Help program. The application process requires the IHA to submit a request for conversion to the HUD Area ONAP. The HUD Area ONAP must review the application for legal sufficiency; tribal acceptance; demonstration of family interest; evidence that units are habitable, safe, and sanitary; family qualifications; and financial feasibility. HUD also has provisions for converting a rental project to the Mutual Help program prior to development of the project. This is referred to as reformulation and requires HUD approval. The preamble to the Federal Register publication of the final rule part 950 addressed reformulation as follows:

* Consistent with other grant programs, if an IHA wishes to redirect project funds, a program modification must be proposed and approved before such reformulation can proceed.

NWONAP allowed the IHA to use Low-rent development funds as if they were Mutual Help homeownership development funds.

The NWONAP denied an IHA request to reformulate the Low-rent development to a Mutual Help development. Instead of officially reformulating the development NWONAP simply allowed the IHA to sell houses developed with Low-rent development funds to participants as if they were Mutual Help development funds. These houses were developed with funds allocated by the development plan to the Shoalwater Bay Indian Tribe. The IHA had planned to convert the houses from Low-rent to Mutual Help and the NWONAP Administrator understood that if an IHA is planning to convert a rental project to Mutual Help, it should treat it as Mutual Help from the start. The IHA's Executive Director's notes from a January 1996 meeting with HUD show the NWONAP Administrator suggested the IHA execute Mutual Help leases for the units it was acquiring.

As a result, the IHA sold seven Tribal members houses for $531,7292 less than the $749,295 it cost to develop them and the ten intended Low-rent units were not developed.

Seven Tribal members purchased houses developed with Low-rent funds for at least $531,7293 less than the $749,295 it cost to develop them. Since these seven homes were built with Low-rent development funds and were not converted to the Mutual Help program, the disposition should have followed the rules in 24 CFR 950 Subpart M for disposal of Low-rent dwelling units. Those rules and the Annual Contribution Contract require HUD approval of the disposition and sale at fair market value.

The Tribal Chairman, who was not low income, received the greatest benefit.

The IHA's records show the Tribal Chairman had an income of at least $13,000 over the low income limits when he applied for Low-rent housing in 1994. The Chairman received the largest house under the program, at 2,100 square feet and at a cost to the IHA of $176,405. The IHA sold the home to the Chairman for $76,184. The IHA has had the $76,184 first mortgage for sale since the Chairman moved in during April 1996. Additionally, the IHA did not require the Chairman to make any mortgage or rental payments for the first 11 months he lived in the home.

This occurred because NWONAP's Administrator placed a higher priority on the flexibility in the regulations than on following the rules of the program.

The NWONAP Administrator allowed the IHA's program to go forward in the spirit of increased flexibility. He stated that he depended on the IHA's prior Executive Director's assurances that the program complied with regulations. Also, the NWONAP Administrator relied on the verbal assurances of a staff member and instructions he thought were from Headquarters that Low-rent projects could be treated as Mutual Help projects right from the start if an IHA intended to convert. However, the Low-rent requirements state that the reformulation (during development) must go through a re-rating and re-ranking process before being approved by ONAP. ONAP Headquarters staff confirmed that unless the IHA applies and the Field Office approves a change, a Low-rent project may not be treated as Mutual Help. The Deputy Assistant Secretary for Native American Programs stated that to be fair, they do not want IHAs to be able to change the type of development at will, therefore they need to go through reformulation.

The NWONAP's actions allowed ineligible expenditures totaling $236,235 for a polluted site and the sale of houses built with Low-rent funds for $531,7294 less than the $749,295 they cost. These actions have reduced the number of housing units provided to eligible participants. We believe that these conditions should be corrected consistent with the requirements of the US Housing Act of 1937. However, we recognize that the Native American Housing and Self Determination Act of 1996 now governs HUD's Native American Housing programs and will govern the use of any funds repaid to the program.

Date Issued: October 26, 1998
Audit Related Memorandum No: 99-BO-119-0801
File Size: 78KB

Title: Advisory Report on Section 8 Contract Administration

This report presents our review of six Contract Administrators in New England. We wanted to evaluate the performance of Contract Administrators and identify any issues that could have an effect on the Department's plan to contract out the administration of Section 8 Housing Assistance Payments. Contracting out project-based Section 8 administration is critical to the framework of the HUD 2020 Management Reform Plan. Proper implementation of this activity could have a positive affect on HUD's future.

At the September 10, 1998 meeting, you stated that you were planning to issue a performance-based contract. Under a performance-based contract, the Department would define objectives to be completed under the contract. You informed us that the Department does not have experience with performance-based contracting. We are presenting information about the operations of six Contract Administrators to assist the Department in its preparation of these objectives for its Request for Proposals. This will be HUD's first Request for Proposal for a performance-based contract. We have also identified a number of issues that the Department should consider while preparing this Request for Proposals. Recognizing and addressing these issues will assist the Department in successfully transferring the administration of Section 8 Housing Assistance Payment Contracts.

Since your office is developing the Request for Proposals, we believe that timely presentation of data from current Contract Administrators will be beneficial. Therefore, we are not presenting a draft report seeking comments. Also, we have not included any recommendations.

Date Issued: September 30, 1998
Audit Report No. 98-SE-148-0003
File Size: 0KB

Title: Citizen Complaint, City of Spokane, Section 108 Loan Guarantee Application Redevelopment of River Park Square, Spokane, Washington

We reviewed complaints from citizens and organizations concerning the City of Spokane's Section 108 loan guarantee application for the redevelopment of River Park Square. The complaints were submitted to the Office of Inspector General, to the Office of Block Grant Assistance in HUD Headquarters, and to other entities. We focused our review on the allegations in the complaints that raised questions about eligibility of the project and compliance with HUD regulations. We categorized the allegations into seven HUD-requirement issue areas. These were national objectives, public benefit, private financing of the project, displacement of jobs and businesses, citizen participation, financial feasibility, and aspects of the environmental review process. We determined that the allegations identified a violation or possible violation of HUD regulations for two of the seven issue areas. We also identified one deficiency that was related to the issue areas we reviewed but was not specifically included in the complaints.

Date Issued: September 15, 1998
Audit Report No. 98-SF-174-0002
File Size: 222KB

Title: Internal Audit - Office of Fair Housing and Equal Opportunity

This report includes four findings with recommendations for corrective action. Issues presented in the first two findings have previously been brought to FHEO's attention; however, serious problems still exist. In September 1994, the United States Commission on Civil Rights (USCCR) assessed the fair housing activities of HUD and reported that it had not made cause determinations within the 100-day benchmark set by Congress. Also in 1996, USCCR assessed Title VI enforcement efforts and reported that HUD had not ensured that recipients and sub-recipients complied with Title VI requirements. As shown in Findings 1 and 2 of this report, the same conditions existed at the time of this review.

We note that FHEO requested a funding increase from $30 million to $52 million for FHAP agencies and FHIP grantees for FY 1999. We question the underlying basis or appropriateness for the funding increase especially since this audit points out serious management deficiencies in FHEO's ability to adequately manage its programs. We believe that FHEO should assure itself that, in light of current staffing reductions, it can sufficiently absorb any workload increase resulting from this funding increase. Another concern is the ability of FHAP agencies to properly manage their programs. As noted in Finding 1, FHAP agencies were not managing their workload effectively and funding methods for these agencies were not economical and potentially wasteful. We have also noted in Finding 3 that FHEO has not satisfactorily accomplished its responsibilities for administering the FHIP.

Issue Date: August 31, 1998
Audit Report No. Report: 98-SF-112-0001
File Size: 131KB

Title: Earthquake Loan Program (HELP)

We performed an audit of the HUD Earthquake Loan Program (HELP). The purpose of our audit was to determine if the program was designed and implemented in accordance with the Act and administered in a manner that minimized fraud, waste, or abuse of HUD funds. We concluded that HUD needs to develop a detailed response plan for future disasters and take corrective action to identify and recover all HELP funds that were a duplication of other funds.

HUD Responded Rapidly To Aid Multifamily Project Owners The Emergency Supplemental Appropriations Act of 1994 provided relief to victims of the January 1994 Southern California earthquake. HUD responded rapidly by creating the HELP to aid owners of damaged HUD assisted multifamily projects. Generally, actions taken by the HUD Los Angeles Area Office (LAAO) staff provided prompt and effective relief; however, we found areas where there needs to be more extensive up-front disaster relief planning. We believe that the lessons learned during the response to this disaster can be used to more effectively and efficiently respond to future disasters. This report provides the basis for the planning needed.

HELP Controls Did Not Safeguard HUD Funds HUD did not design the HELP with controls that adequately safeguarded HUD funds from fraud, waste, or abuse. The weaknesses were most evident in four areas:

* Waivers or modification of statutes, regulations, and handbook requirements created opportunity for abuse;

* HUD did not restrict funding to earthquake repairs and costs;

* Program and loan administration guidance was unclear; and,

* Legal and reporting requirements were not addressed.

Absence Of A Plan And Insufficient Staffing Allowed For Ineligible Expenditures HUD is required to establish controls to safeguard assets and prevent duplication of benefits through its financial assistance programs. We believe the HELP weaknesses we identified occurred because HUD had no response plan to effectively implement, monitor, and oversee disaster assistance. In addition, insufficient personnel were available to accomplish necessary oversight. As a result, some owners/agents assisted under the HELP (1) received funds even though they had obtained funds from other sources; (2) made ineligible and questionable expenditures; (3) diverted funds for personal use; and, (4) received possible preferential treatment for funding. Specifically, HUD obligated or disbursed questionable HELP funds of $7.1 million to owners/agents of the 27 projects that we reviewed.

HUD-Wide Disaster Response Plan And LAAO Recovery Of Duplicate Funds Are Recommended We recommended that all Assistant Secretaries whose programs/staffs are expected to provide assistance to disaster victims in the future develop plans that address known requirements. We also recommended that the Director of the Los Angeles Multifamily Hub be required to identify and recover all HELP funds that were a duplication of other funds. Due to the inconsistencies and inadequacies of the HELP guidance, we did not recommend that HUD take any further action to resolve the other questioned costs cited in our report.

HUD Agreed With The Finding And Recommendations The Acting General Deputy Assistant Secretary for Housing generally agreed with the finding and our recommendations and said that his office was taking or planned to take the necessary steps to implement them. He stated that HUD's disaster response was rapid, comprehensive, and resulted in positive accomplishments. However, he acknowledged that HUD-wide guidance must be complemented with more detailed program office guidance in order to assure that problems such as those cited in this report are avoided in the future. His written response is included as Appendix A to this report.

Issue Date: June 5, 1998
Audit Report No. 98-DP-166-0002
File Size: 347KB

Title: Personal Computing (PC) Workstation Procurement

We performed this review to determine if personal computing (PC) equipment and accessories procurement practices were cost effective. We also followed up on a prior OIG audit related to inventory controls over personal computers. During our preliminary review, we found the Department had purchased computers and peripheral items at higher than fair market prices. We concluded that buying PC equipment and accessories exclusively through the Indefinite Delivery Indefinite Quantity (IDIQ) arrangement with HUD's primary contractor for information technology was not cost effective. For example, the Department paid as much as 20% more than market prices for similar or identical workstations and the IDIQ price for 93% of the peripheral equipment tested exceeded the General Service Administration (GSA) price list. Subsequent to our preliminary review, the Office of Information Technology (IT) initiated a change in the procurement practice by buying equipment from sources providing equipment at prices set by the GSA. These prices usually were lower than those of the IDIQ arrangement. The changed approach in buying computers has saved HUD about $3.8 million. However, the revised procurement practice remains an informal process that would still allow items be purchased at higher prices, whether by either the GSA price list or the IDIQ arrangement.

The Department should adopt a policy where it is standard practice to always comparison shop and purchase equipment at the lowest possible cost to the Government. Regarding the follow-up review on weak inventory controls for PC equipment, we found the previously reported weaknesses still exist. The Department still lacks an effective inventory system to timely and accurately track new PC equipment ordered and received. As a result of these weak controls, the Department is open to theft of computers and related equipment. The Office of Administrative Management Service (OAMS) and IT must work together to develop a system to accurately and timely account for PC equipment.

Issue Date: June 1, 1998
Audit Report No. 98-DP-166-0003
File Size: 602KB

Title: Review of HUD's Efforts to Correct Year 2000 Problems

On January 1, 2000, it is a real possibility that many of the Department of Housing and Urban Development's (HUD's) computer systems will malfunction or produce incorrect information simply because the century date has changed. The Year 2000 problem is rooted in the way dates are recorded and computed in automated information systems. For the past several years, programmers have typically used two digits to represent the year, such as "97" to represent 1997. However, starting in the Year 2000, the continued use of two digits will render the date indistinguishable from the year 1900, or 2001 from 1901. As a result of the ambiguity, HUD's system or application programs that use dates to perform calculations, comparisons, or sorting may generate incorrect results. Unless corrected, the impact of these failures will be widespread and costly to the Department.

HUD recognized the Year 2000 date problem two years ago and established a Year 2000 project in the Office of Information Technology (IT). Some progress has been made in HUD's effort to correct the Year 2000 date problem. Both the awareness and assessment phases of the project have been completed. In particular, the project office has identified all mission critical systems, prepared a Year 2000 readiness guide, and conducted a risk assessment. However, HUD has failed to take several "industry recognized" best practices to minimize the risk and impact of system failures caused by the Year 2000 date problems.

First and foremost, HUD needs to establish an agency-level program office to manage and coordinate Year 2000 activities rather than leaving the project management at two levels below the Office of Information Technology. The recently issued Executive Order on February 4, 1998, states that agency heads are now responsible for the Year 2000 problem. With the short time left, an executive level office is needed to ensure accurate and timely reporting of Year 2000 status and to make the hard decisions regarding business priorities and resource allocation. This office must assess the impact of using the same limited number of qualified personnel (HUD and Contractor employees) for both new system initiatives and the Year 2000 project.

Second, HUD must also immediately implement configuration management (CM) for its mission critical systems. CM is an industry accepted practice of controlling changes made to a system's software and associated documentation throughout the development and operational life of the system. Although IT had agreed over the past three years to implement CM, currently only two of the 75 mission critical applications are partially under the control of CM. Since there are millions of lines of code in HUD's systems, CM is crucial to manage the changes made to those systems. Without CM, HUD cannot readily track and test all of the fixes made to the date fields needing correction for Year 2000.

A third important step is developing contingency plans to ensure operational continuity in the event of equipment failures and software failures in the Year 2000. Until recently, the Year 2000 Project has not focused on contingency planning for core mission business areas. Without adequate contingency planning, Year 2000 failures will render HUD unable to write new and/or maintain existing billions of dollars worth of Single and Multifamily insurance and long-term housing subsidy commitments. Further, a disruption to the subsidy processing system would become an additional hardship for more than three million families, whose Section 8 rent-subsidy checks would be delayed for an indeterminate period of time.

Issue Date: May 20, 1998
Audit Report No. 98-HQ-169-0001
File Size: 62KB

Title: Review of Non-Career Senior Executive Service (SES) Qualifications

We found that HUD's personnel procedures did not include establishing required qualification standards and evaluating whether non-career executives met the standards prior to their appointment to the SES. As a result, HUD's procedures did not comply with the Civil Service Reform Act of 1978 (Public Law 95-454) and applicable regulatory requirements. We are recommending actions to ensure HUD is selecting non-career executives that meet mandatory qualifications.

Issue Date: May 1, 1998
Audit Report No. 98-AT-121-0002
File Size: 754KB

Title: Audit of Section 203(k) Rehabilitation Mortgage Insurance Program

Although the program was successful in many respects, our review disclosed that: (1) substantial improvements were needed in lender performance, and (2) borrower information was recorded incorrectly in HUD's database.

Issue Date: March 31, 1998
Audit Report No. 98-BO-111-0002
File Size: 171KB

Title: Sect. 8 Rent Increases under the Budget-based Method

We are recommending that you promulgate guidance to prevent rent structure conversions without proper approval, and prevent rent increases from significantly exceeding 120 percent of Fair Market Rents. Further, the Department's policy on funding capital improvements should be clarified.

Issue Date: March 20, 1998
Audit Report No. 98-FO-177-0004
File Size: 943KB

Title: HUD FY97 Financial Statements

In accordance with the Chief Financial Officers (CFO) Act of 1990, this report presents the results of our audit of HUD's principal financial statements for the year ended September 30, 1997. Also provided are assessments of HUD's internal controls and compliance with laws and regulations. HUD continues to face major challenges in its efforts to correct longstanding material internal control weaknesses. As we discuss in the report, HUD needs to overcome issues with its internal control environment, such as the need to upgrade financial systems and improve resource management, that are hindering its ability to carry out its mission and improve the management of its programs. Our report discusses the significance of HUD's financial management and control problems and HUD's actions to correct them. Our report also contains recommendations to assist the Department in its continuing efforts to correct these longstanding problems.

Issue Date: March 12, 1998
Audit Memorandum 98-SE-107-0808
File Size: 62KB

Title: Congressional Request, Development Costs of Alaska Native Housing, Anchorage, Alaska

We performed a review of development costs of Alaska Native housing in response to a request received from United States Senator Frank H. Murkowski. Senator Murkowski requested our assistance in examining the appropriateness of the costs associated with developing housing for Alaska Natives. Given the nature of the request and previous work that has been done by the Department of Housing and Urban Development (HUD) as well as the Office of Inspector General, we spoke with the Senator's staff to decide on mutually agreeable objectives for that review. Based upon the discussions, it was decided that we would determine:

* the per unit and per project costs to construct the HUD housing at Eagle, Healy Lake, Tetlin, and Tok, including off-site sewer and water;

* how the costs of developing housing at these four remote locations compared to the costs of developing other housing for Alaska Natives; and,

* whether these costs differed significantly, and, if so, why.

In performing our review, we visited the four project sites and talked to the various parties involved in the development of the projects, including the architect, cost estimator, and representatives from the Interior Regional Housing Authority (Authority) and HUD. We also reviewed project records. The results of our review are contained in Attachment I to this memorandum.

Issue Date: March 9, 1998
Audit Report No. 98-FO-131-0003
File Size: 1,020KB

Title: Audit of the Federal Housing Administration's Fiscal Year 1997 Financial Statements

This report presents the results of KPMG Peat Marwick LLP's (KPMG) audit of the Federal Housing Administration's (FHA) financial statements for the year ended September 30, 1997. We concur with KPMG's opinion, that the financial statements present fairly, in all material respects, FHA's financial position and results of its operations, and cash flows for the year then ended, in conformity with generally accepted accounting principles.

Issue Date: March 9, 1998
Audit Report No. 98-FO-171-0002
File Size: 209KB

Title: Audit of the Government National Mortgage Association's Fiscal Year 1997 Financial Statements

This report presents the results of KPMG Peat Marwick LLP's (KPMG) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the year ended September 30, 1997. We concur with KPMG's opinion, that the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 1997 and results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.

Issue Date: March 3, 1998
Audit Related Memorandum No. 98-AO-203-1802
File Size: 59KB

Title: Corrective Action Verification Audit Report No 96-AO-203-1002 District of Columbia's Section 8 Certification and Voucher Payment System

We found that DCHA demonstrated poor efforts to collect excess HAP. Overpayments occurred when landlords continued to receive HAP checks in the months after a Section 8 tenant moved and failed to notify DCHA. Our 1996 audit reported uncollected excess HAP of approximately $440,000 from fiscal years 1993 to 1995. We found that DCHA recovered only 15 percent or $64,000 of the $440,000. Furthermore, our current review noted an additional $227,373 in excess HAP made during fiscal years 1996 and 1997.

Issue Date: February 23, 1998
Audit Related Memorandum No. 98-SE-107-0805
File Size: 110KB

Title: Secretarial Request, Office of Native American Programs, Oversight of Indian Housing Authorities, Northwest Office of Native American Programs, Seattle, Washington

On November 29,1996, OIG received a request from the Secretary of HUD to thoroughly review allegations of various improprieties in the use of HUD funds by tribal governments and/or Indian housing authorities (IHAs) and inadequate monitoring by HUD's Office of Native American Programs (ONAP). Program abuse at IHAs across the country was alleged in The Seattle Times' December 1996 series of articles entitled "From deregulation to disgrace" which identified 29 instances.

Issue Date: February 23, 1998
Audit Related Memorandum No. 98-SE-107-0804
File Size: 37KB

Title: Secretarial Request, Office of Native American Programs, Oversight of Indian Housing Authorities, Southern Plains Office of Native American Programs, Oklahoma City, Oklahoma

On November 29,1996, OIG received a request from the Secretary of HUD to thoroughly review allegations of various improprieties in the use of HUD funds by tribal governments and/or Indian housing authorities (IHAs) and inadequate monitoring by HUD's Office of Native American Programs (ONAP). Program abuse at IHAs across the country was alleged in The Seattle Times' December 1996 series of articles entitled "From deregulation to disgrace" which identified 29 instances.

Issue Date: February 23, 1998
Audit Related Memorandum No. 98-SE-107-0803
File Size: 69KB

Title: Secretarial Request, Office of Native American Programs, Oversight of Indian Housing Authorities, Southwest Office of Native American Programs, Phoenix, Arizona

On November 29,1996, OIG received a request from the Secretary of HUD to thoroughly review allegations of various improprieties in the use of HUD funds by tribal governments and/or Indian housing authorities (IHAs) and inadequate monitoring by HUD's Office of Native American Programs (ONAP). Program abuse at IHAs across the country was alleged in The Seattle Times' December 1996 series of articles entitled "From deregulation to disgrace" which identified 29 instances.

Issue Date: February 23, 1998
Audit Related Memorandum No. 98-SE-107-0802
File Size: 66KB

Title: Secretarial Request, Office of Native American Programs, Oversight of Indian Housing Authorities, Northern Plains Office of Native American Programs, Denver, Colorado

On November 29,1996, OIG received a request from the Secretary of HUD to thoroughly review allegations of various improprieties in the use of HUD funds by tribal governments and/or Indian housing authorities (IHAs) and inadequate monitoring by HUD's Office of Native American Programs (ONAP). Program abuse at IHAs across the country was alleged in The Seattle Times' December 1996 series of articles entitled "From deregulation to disgrace" which identified 29 instances.

Issue Date: February 23, 1998
Audit Related Memorandum No. 98-SE-107-0801
File Size: 154KB

Title: Secretarial Request, Office of Native American Programs, Oversight of Indian Housing Authorities, Eastern Woodlands Office of Native American Programs, Chicago, Illinois

On November 29,1996, OIG received a request from the Secretary of HUD to thoroughly review allegations of various improprieties in the use of HUD funds by tribal governments and/or Indian housing authorities (IHAs) and inadequate monitoring by HUD's Office of Native American Programs (ONAP). Program abuse at IHAs across the country was alleged in The Seattle Times' December 1996 series of articles entitled "From deregulation to disgrace" which identified 29 instances.

Issue Date: February 23, 1998
Audit Related Memorandum No. 98-SE-107-0002
File Size: 281KB

Title: Secretarial Request, Office of Native American Programs, Oversight of Indian Housing Authorities, Washington, DC

This report summarizes the results of our review of the Office of Native American Program's oversight of Indian housing authorities as requested by the Secretary of HUD on November 29, 1996. It shows a need for better performance by IHAs and the Office of Native American Programs in providing reasonable assurance that HUD programs are operated free from fraud, waste, abuse and mismanagement.

Issue Date: January 30, 1998
Audit Report No.: 98-AO-123-0001
File Size: 345KB

Title: Audit of the Single Family Real Estate Owned Pilot Contracts

The Capital District was requested by the HUD Single Family Division to review the Single Family Real Estate Owned (SFREO) pilot contracts to identify areas where HUD is vulnerable to fraud, waste, and abuse of Federal assets. We were also requested to recommend ways to improve their proposed approach to issue a national single family property disposition contract. During our exit conference, we were informed that HUD is no longer actively pursuing the national contract concept but is considering the use of similar contracts at the individual HUD Single Family Home Ownership Centers. Based on our audit of the three pilot contracts, we identified program improvements that HUD should implement now as well as revised contract language that will improve the efficiency and effectiveness of the pilot contracts. If HUD reconsiders pursuing the national contract or similar pilot contracts, HUD should revise the contracts to include our recommended improvements.

Consistency and Effectiveness of Contract Requirements The pilot contracts need improvement to maintain consistency and effectiveness in performance. Specifically, the contracts do not require the contractor to comply with current changes in HUD legislation, regulations, or other HUD policy and procedural documents; contract terminology is vague and nonspecific; and restrictions are not placed on the use of identity-of-interest companies. In addition, the pilot contracts do not require the contractor to maintain a written policies and procedures manual for its property disposition operations. In a related matter, we believe HUD could reduce its cost of repairs reimbursed under the pilot contract by modifying the contracts to require the use of preferred vendor lists and unit pricing matrices instead of soliciting bids for repairs over $1,000. We recommend that HUD address the cited contract improvements in pilot contracts now or in the national contracts if HUD proceeds with the concept. Management of Custodial Properties Custodial properties are a continuing problem. Properties remain classified as custodial for years because HUD does not aggressively follow up on title transfers. As a result, HUD incurs increased and unnecessary holding costs to maintain them. For example, we estimated that for the last 3 years, holding costs of $31.8 million were paid for 1,013 custodial properties that have been in the inventory for 3 years or more.

Issue Date: January 6, 1998
Audit Related Memorandum No. 98-DP-166-0001
File Size: 20KB

Title: Interim Review on HUDCAPS Performance- Year 2000 Compliance

We found that HUD has not taken adequate steps to minimize the impact of the Year 2000 problem. Specifically, HUD has not (1) developed a Year 2000 detailed project plan for HUDCAPS, (2) assessed the adverse impact of stored dates on HUDCAPS application processing, (3) traced and mapped the missing source code modules with date fields to the executable modules, and (4) developed a test strategy and acquired the necessary test supporting tools. Additionally, HUD has not yet completed the implementation of configuration management software (ENDEVOR) for HUDCAPS. Without adequate configuration management, HUD cannot ensure that the Year 2000 changes are properly made to avoid system failures, errors and omissions.

Issue Date: December 18, 1997
Audit Related Memorandum No. 98-NY-112-0802
File Size: 9KB

Title: Riverside South Apartments Project No. 012-32269

As you are aware, the Office of Inspector General (OIG) in a previous Audit Related Memorandum1 questioned an application for mortgage insurance pertaining to Riverside South Apartments. In that Memorandum, we explained that because of local community and congressional interest, the OIG evaluated a $356 million application for mortgage insurance. The mortgage proceeds were to be used to build Riverside South Apartments, a development located on the Upper West Side of New York City, New York. Our conclusion was that FHA should not insure the proposed $356 million mortgage for three reasons, which are provided in the attached Audit Related Memorandum. Subsequent to issuing that memorandum, the Mortgagee withdrew that application and submitted a revised one in August 1997, which shows a drastic reduction in the project's size and mortgage amount. Nonetheless, our evaluation of the revised application resulted in the same concerns that we raised in our previous Audit Related Memorandum.

According to the revised application, the Mortgagee reduced the request for mortgage insurance from $356 million to $180 million. The Mortgagee originally requested that FHA insure a loan to build a project consisting of four buildings containing 1,663 residential units, of which 333 would have been available for low income families. In the revised application, the project will consist of two buildings containing 853 units, of which 171 units will be available for low income families. In the original application, 65 percent of the site consisted of a park and pier (58 percent pertained to the park while 7 percent pertained to the pier). In the revised application, the pier was dropped, but the park remained and still represents 58 percent of the site. During the review of the original application, we estimated that the value of the park and pier represented one-fourth of the mortgage. Likewise, during our review of the revised application, we estimate that the value of the park represents almost one-fourth of the mortgage.

As previously described, the scope of the project was simply cut in half. Therefore, the same three reasons that we provided in our previous Audit Related Memorandum, as to why FHA should not insure the $356 million mortgage, also pertain to the $180 million request. Consequently, we do not believe that FHA should bear the risk of insuring the revised request for mortgage insurance for three reasons. First, for each million dollars of insuring authority only one unit of low income housing will be built; second, almost one-fourth of the security of the mortgage (park) will eventually be given to the City of New York; and third, as we explained in our previous Audit Related Memorandum, we question whether Congress intended for FHA to insure a mortgage that includes the value of a park.

The major issue is the park. It is important to note that the Developer plans to develop approximately 21 acres of the former Penn Central rail yard into a park along the Upper West Side of New York City, New York as part of a grand plan to construct buildings containing 5,700 housing units. If the FHA approves the revised application for mortgage insurance, which includes the value of approximately four acres of the park, the precedent will be set for the Developer to submit other applications with other parts of the park to the FHA in a piecemeal manner. In short, it is possible that FHA could end up insuring the value of a substantial part of the park.

During our evaluation of the revised application, we noted that representatives of the Mortgagee are discussing different strategies with HUD officials in the New York City Field Office regarding the conveyance of the park to the City of New York. The primary issue is whether the park should be conveyed to the City immediately after it is developed and the buildings constructed, or at some later date. It is our position that regardless of when the park is conveyed to the City of New York, considering the size of this mortgage, it would be a significant drain on the FHA insurance fund, if a mortgage default occurred that results in a mortgage assignment to HUD. Furthermore, if the Developer is resolute in its intention to donate the park to the City, then we question why the Developer does not merely make the donation outside of the insured mortgage transaction.

In our previous Audit Related Memorandum, we explained how FHA's procedures allowed developers to obtain high amounts of insuring authority, and we made appropriate recommendations to request that a limit be placed on the value of site not attributable items, such as a park, that can be included in the amount of insured mortgages. As you are aware, the OIG and FHA are at an impasse as to the resolution of these recommendations; therefore, we requested that the Deputy Secretary review the matter.

In this Audit Related Memorandum, we are recommending that the FHA seek a legal opinion to determine if Congress intended for the FHA to insure mortgages that include the value of a park as an allowable amenity when it passed Section 220 of the National Housing Act. If the legal opinion provides that a park is not an allowable amenity, the FHA should not approve the revised application.

Issue Date: November 25, 1997
Audit Case Number 98-HQ-179-0801
File Size: 200KB

Title: Interim Review of HUD 2020 Management Reform Plan

While we agree that HUD must reform, and agree with some of the corrective measures in the HUD Reform Plan, we generally remain cautious about the potential effectiveness of HUD's new organizational configuration, the Department's capacity to implement its planned reforms, and the potential effectiveness of many of its planned reforms. We also believe that the HUD Reform Plan could have the unintended effect of compounding many of HUD's current problems, and could even create new problems for the Department. HUD, therefore, is undergoing a drastic downsizing and overhaul of its organization and operations, in a relatively short period of time, and without any assurance that its reforms will enable the Department to accomplish its mission and restore the public's trust in HUD. Nevertheless, HUD management is moving quickly to institute its reforms, and is making continuous modifications to such reforms.

Our major concerns are the manner in which the HUD Reform Plan was developed, and the premises upon which it is based. Briefly, the HUD Reform Plan was largely developed without the benefit of any formal and open consultation process involving responsible, affected and interested parties. In addition, a cost-benefit analysis of the Department's planned reforms was not performed prior to HUD's announcing its reform decisions in June of this year. Further, the HUD Reform Plan is built on an unsupported premise, namely, that the Department can adequately function with a staff of 7,500. This arbitrarily derived staff level was determined without first performing an adequate analysis of HUD's diverse and complex mission, and without assessing its financial risk exposure, functions, and future workload demands.

In conjunction with HUD's FY 1996 appropriations hearings, the Department stated in reference to its Reinvention Blueprint legislative proposals that "Without enactment of most of these proposals, reduction to 7,500 fte will cripple HUD's operations." Although the Department is rapidly approaching its 7,500 staff target level, its reform implementation plans have not been finalized, and its proposed legislation to streamline and consolidate programs has not been enacted. As a result, the Department is now in serious jeopardy of not having the capacity to carry out its current mission and responsibilities. Furthermore, once the 7,500 downsizing target is reached, HUD will have no capacity to handle any additional workload that may come about as a result of the enactment of future HUD related legislation.

Issue Date: November 17, 1997
Audit Report No. 98-SE-148-0001
File Size: 123KB

Title: Citizen Complaint, City of Seattle, Section 108 Loan Guarantee, Acquisition of Frederick and Nelson Building, Seattle, WA

We reviewed complaints received from the Seattle Displacement Coalition, related to the City of Seattle's Section 108 loan guarantee for acquisition of the Frederick and Nelson building. This review focused on the regulatory and programmatic issues in the complaints. We found that the allegations in the complaints, that the application should not have been approved, were not valid. However, the complaints identified four programmatic issues that HUD needs to address to further its efforts to empower grantees and citizens. We also identified two deficiencies in the City's administration of the Section 108 activity.

Issue Date: October 20, 1997
Audit Case Number 98-FO-101-0001
File Size: 2,180KB

Title: Audit of the Fiscal Year 1996 Hope VI Grant Award Process

HUD awarded $381 million of Fiscal Year 1996 HOPE VI funds to 37 ineligible applicants (Appendix D). The applicants were ineligible because they did not demonstrate compliance with the eligibility requirements, as specified in the HOPE VI Notice of Funding Availability (NOFA). HUD determined eligibility for the 37 applicants by either revising the criteria for determining eligibility after the deadline date for submission of theapplications, not properly considering NOFA eligibility requirements, or enhancing applications by considering information not provided by applicants. We concluded that HUD's funding of applicants that did not demonstrate compliance with the NOFA requirements, did not comply with Section 102 of the HUD Reform Act. The Department had the opportunity to avoid the HUD Reform Act compliance issue by publishing a revision to the NOFA and extending the date for applicants to submit revised applications. We attribute HUD's decision not to publish a revised NOFA to their intention to award HOPE VI funds by September 30, 1996. The Department's decision to award the HOPE VI funds by September 30, 1996 was not necessitated by the need to obligate these funds by fiscal year end. The Appropriations Act specified that the HOPE VI funds were to remain available until expended. The Acting Assistant Secretary for Public and Indian Housing advised us that he made the decision to award the funds by fiscal year end because of past criticisms of HUD not awarding funds in a timely manner. He also wanted to take into consideration the needs of the housing authorities to timely carry out the activities provided for in the grant agreements.

Issue Date: October 10, 1997
Audit Related Memorandum 98-NY-112-0801
File Size: 29KB

Title: Proposed Financing Plan for Jose De Diego Beekman Houses

It has recently come to our attention that HUD is finalizing an expansive refinancing package for eight Section 236 projects, known as the Jose De Diego Beekman Houses (Beekman Houses), located in the City of New York. This package provides for HUD expenditures of nearly $181 million over the next 15 years to rehabilitate and stabilize the developments, over 80 percent of whose units do not meet basic housing quality standards (HQS), while holding harmless the parties who own and manage the properties. Under the package, substantial benefits can accrue to these owners, while only a nominal contribution for their continued participation is required.

We must express our concern that: The plan is a poor deal for HUD and the taxpayers; The plan rewards a landlord who may bear responsibility for the deplorable conditions of the projects; and HUD's agreements with the landlord may undermine HUD's enforcement ability.

Issue Date: September 30, 1997
Audit Case Number 97-DP-166-0001
File Size: 1,066KB

Title: HUDCAPS Access Controls Need Improvement

As a result of our review, we found that the Department had not taken adequate measures in the general control environment during HUDCAPS' implementation to control system access. This situation exposed the Department to the risk of unauthorized use of restricted data and programs.

Issue Date: September 30, 1997
Audit Case Number 97-PH-163-0001
HUD's Response
File Size: 730KB

Title: HUD Contracting Activity

We found several contracts where HUD used an indefinite quantity/task order process to expedite procurement, but the combination of vague work orders, inadequate estimates and lack of oversight led to incumbent contractors basically holding the Department hostage to the present contract. Consequently, HUD has found itself in some financially unsound and costly long term arrangements. The problems related to contracting cited in this report were compounded over the past four years by continuing departmental weakness noted in our semiannual reports to Congress; namely, a lack of integrated financial and management data systems, dwindling experienced staff resources, and the proliferation of new programs and initiatives.

Issue Date: September 30, 1997
Audit Case Number 97-PH-163-0002
File Size: 193KB

Title: Memorandum of Agreement Department of HUD and Department of the Army, Washington, DC

We determined that the current MOA contains many deficiencies and is not in HUD's best interest. Further, HUD Field Offices are not receiving the inspection information as required.

Issue Date: September 4, 1997
Audit Case Number 97-SF-123-0002
File Size: 58KB

Title: Sales of HUD-Owned Properties Single Family Real Estate Owned Branch, Arizona State Office

Our audit focused on sales of HUD-owned properties where the sales price of, and related FHA-insurance on, the properties appeared excessive.This report contains one finding and recommends actions necessary to protect the homebuyers HUD serves while protecting the Department's FHA insurance fund.

Issue Date: July 23, 1997
Audit-Related Memorandum 97-SF-123-0802
File Size: 30KB

Title: Monitoring of the Real Estate Asset Management Contract Real Estate Owned Branch, Phoenix Office

We found that REO staff did not effectively monitor the REAM'S performance. Specific problems noted during our review were: a. REO staff did not make routine inspections of acquired properties as required. b. Reviews of the contractor's operations were not adequate. c. Reviews were not made to ensure that subcontractors were properly licensed and insured. d. Contract performance requirements were changed without the contracting officer's authorization.

Issue Date: July 3, 1997
Audit Related Memo. No: 97-BO-151-0806
File Size: 497KB

Title: Vulnerability Assessment Transitional Housing Programs, New England District

We found that eligible individuals were receiving the intended benefits of the program. Documentation of eligibility in the participant's files met the criteria of your October 30, 1995 memorandum, "Guidance on Documentation of Participant Eligibility Under Homeless Assistance Programs." We found that HUD funds were being adequately controlled and that the grantees' accounting systems were sufficient to account for the receipt and use of HUD funds. Due to the nature of most grants reviewed, matching funds were not specifically required by HUD. However, most of the grantees had obtained supplemental funds in order to fully accomplish the objectives of their program. In the case of the Foundations project, which involved the acquisition and rehabilitation of properties, we observed commitment letters from non-Federal sponsors that assured the required matching funds would be provided. In our review of the four grants which had subgrantees, we learned that two grantees had performed limited financial reviews and none had performed on site-program reviews due to a lack of resources. For details see Appendices A, E, F, and G.

Issue Date: June 25, 1997
Audit Related Memorandum No: 97-BO-111-0805
File Size: 39KB

Title: Section 8 Rent Increase Melrose Apartments FHA Project 013-35056 Providence, Rhode Island

Controls have not been established to assure that (1) only reasonable costs are incurred, (2) repairs will be completed within budget, (3) payments are made in accordance with contracts, and (4) funds allocated for repairs are not used for other purposes.

Issue Date: June 3, 1997
Audit Case Number 97-FW-174-0001
File Size: 295KB

Title: Beaumont Fair Housing and Public Housing Offices Beaumont, Texas

The audit found that the Beaumont offices are not achieving their mission and HUD may not have sufficient funding to carry out court-ordered improvements. Also, HUD officials need to determine if a court ruling warrants action. The ruling may result in HUD staff and the Fair Housing Services Center performing duplicate duties and may infringe on HUD's statutory rights to perform compliance monitoring.

Issue Date: June 2, 1997
Audit Related Memorandum No. 97-BO-101-0804
File Size: 30KB

Title: Interim Report Public Housing Drug Elimination Program New Haven, Connecticut

The PHA has not: executed an acceptable contract with the police department; established adequate management and accounting controls over the enhanced police services expenditures; and instituted budgetary controls to prevent overspending.

Issue Date: May 23, 1997
Audit Case Number 97-KC-117-0001
File Size: 84KB

Title: Review of Low Income Housing Tax Credits Program

We concluded NCSHA's standards accomplish the same thing as HUD's subsidy layering guidelines. However, states were not mandated to adopt the standards. We are recommending the Offices of Housing, Public and Indian Housing, and Community Planning and Development work with NCSHA and take the steps necessary to establish mandatory parameters for developer and contractor fees and profits that will have the same effect as subsidy layering reviews.

Issue Date: March 25, 1997
Audit Report No. 97-BO-129-0003
File Size: 31KB

Title: Processing of 48 Defaulted Single Family Mortgages, New Haven, Connecticut

This report contains a finding documenting the delays in foreclosing and identifying specific actions to be taken to limit the Department's potential loss.

Issue Date: February 26, 1997
Audit Related Memorandum No. 97-BO-111-0803
File Size: 48KB

Title: Review of Multifamily Enforcement Actions, West Street Apartments, New Haven, Connecticut

We conducted a review of the Connecticut State Office's (CSO) Multifamily enforcement actions pertaining to West Street Apartments, a 65-unit, multifamily insured project in New Haven, Connecticut. The owner defaulted on the mortgage in August 1995, violated numerous provisions of the Regulatory Agreement, did not cooperate with the CSO staff, and still remains in control of the project.With respect to this one project, it paints a grim picture of HUD's enforcement actions and illustrates how an owner can continue to reap financial benefits without cooperating with HUD. While we recognize HUD has a major Multifamily Enforcement Strategy under way, we believe that HUD can strengthen its process by developing procedures to avoid the pitfalls experienced by the CSO staff. This report contains one finding detailing the CSOs enforcement efforts.

Issue Date: February 21, 1997
Audit Case Number: 97-AT-101-0002
File Size: 144KB

Title: Tenant Opportunity Program, Grantees of Atlanta HA Developments, Atlanta, Georgia

The resident organizations of AHA communities lack the capacity to continue their TOP grants without substantial technical assistance. The grantees lacked control over grant funds, had inadequate books and records, and lacked basic knowledge of the TOP Program. We attribute these conditions to the failure of the TAO concept in that it did not fulfill the role of services coordinator and technical advisor. As a result, the TOP grantees did not develop management capabilities and did not identify social support needs for the purpose of increasing resident management of public housing projects. The 31 grantees have spent about $650,000 or 22 percent of the funds awarded by HUD. In addition, the senior high-rise grantees did not exhibit any desire to pursue resident management or related functions. HUD and AHA have initiated efforts to provide TOP grantees with technical assistance.

Issue Date: February 21, 1997
Audit Related Memorandum 97-NY-112-0802
File Size: 18KB

Title: Riverside South Apartments, NY, NY

We concluded that the FHA should not bear the risk of insuring the proposed mortgage. Our reasons are threefold. First, out of the 1,663 residential units to be developed only 333 of the units will represent low-and-moderate income housing. In essence, for each one million dollars of insuring authority devoted to this development, one unit of low-and-moderate income housing will be produced. Second, immediately following the endorsement of the mortgage, the park and pier, nearly one-fourth of the security for the mortgage, will be given to the City of New York. Consequently, in the event of default, a potential significant loss to the FHA insurance fund is a practical certainty. Third there is a real question as to whether Congress authorized FHA to insure the park and pier.

Issue Date: February 6, 1997
Audit Case Number 97-AT-121-0001
File Size: 86KB

Title: Audit of Section 203(k) Rehabilitation Mortgage Insurance

Our review disclosed that: (1) the 203(k) Program is highly vulnerable to waste, fraud, and abuse by investors and non-profit borrowers, and (2) the escrow commitment procedure increases the amount of certain loans beyond statutory limits.

Issue Date: February 5, 1997
Audit-Related Memorandum 97-KC-1120-0801
File Size: 39KB

Title: Review of Excess Insurance Proceeds

We are recommending that Housing, in conjunction with OGC: (1) publish regulations dealing with prospective accumulations of excess insurance proceeds; and (2) take specific actions to identify excess insurance proceeds and ensure excess proceeds either benefit the housing developments and their tenants or offset HUD's mortgage insurance losses. Audit work through July 15, 1996, showed HUD had paid $17.1 million in excess insurance proceeds on 82 multifamily housing developments. HUD has been successful in recovering $2.7 million. The remaining $14.4 million in excess insurance proceeds was either disbursed to owners, issuers, GNMA, and third parties, or held by trustees.

Issue Date: January 7, 1997
Audit Case Number 97-BO-101-0002
File Size: 60KB

Title: HUD's Public Housing Development Program Acquisition Method

The audit disclosed that the PHAs were partially successful in using Acquisition grant funds to purchase housing units for public housing tenants, were successful in making communities aware of the program, and did experience local community opposition in some locations. We also found that, of approximately $344 Million in Acquisition grant funds approved for Fiscal Years (FY) 1991 through 1995 to purchase housing units, approximately $95 Million, or 28 percent, remains unspent for approved units. It should be noted that approximately 58 percent of these funds remain unspent from FYs 1991 through 1994, which is two to five years ago.

Issue Date: January 6, 1997
Audit Related Memorandum 97-AT-101-0801
File Size: 23KB

Title: Limited Review of the Technical Assistance Organization,Atlanta (TAO), Atlanta, Georgia

The TAO received $320,700 in fees from its member grantees, used $165,463 for operating costs and had funds on hand at August 29, 1996 of $155,237 and receivables due of $3,059. The TAO had payables at the end of review period of $14,602.

Issue Date: November 25, 1996
Audit Related Memorandum No. 97-BO-105-0802
File Size: 23KB

Title: Termination of HOPE 1 Planning Grant, McKnight Neighborhood Council, Springfield, MA

This report contains a finding indicating the need for you to assure the eligibility and reasonableness of the final costs under the Grant and take appropriate action to recover any excess funds if paid to the Grantee.

Issue Date: November 21, 1996
Audit Case Number 97-BO-111-0001
File Size: 80KB

Title: Section 232 Nursing Home Program, Review of Underwriting Procedures

The Department's underwriting procedures are generally sound. However, we found inconsistencies in the way the HUD State Offices treat income from leased operations during the construction phase. These inconsistencies can result in overinsuring HUD mortgages which unnecessarily increases HUD's risk.

Issue Date: November 8, 1996
Audit-Related Memorandum 97-SF-174-0801
File Size: 40KB

Title: Office of Fair Housing and Equal Opportunity, Oversight of Fair Housing Congress of Southern California, Inc., Los Angeles, California

Our review disclosed that FHEO had already determined that FHCSC had not complied fully with the lending grant agreement and had taken corrective action; therefore, we did not continue with a complete review of FHCSC. However, we identified deficiencies in FHEO's oversight of FHCSC's lending grant that warrant reporting and corrective action.

Issue Date: October 25, 1996
Audit Case Number 97-SE-111-0001
File Size: 80KB

Title: Section 8 Rent Recoveries, Alpine Ridge Litigation, Seattle Office of Housing

Our report contains three findings. These findings disclose that the Office of Housing has calculated overpayments of $3.8 million to be collected and has waived interest in exchange for repayment terms not included in the court order authorizing collection of overpayments. Second, Housing misapplied a local Annual Adjustment Factor to past rent increases, resulting in up to $3.7 million in excessive Housing Assistance Payments to Section 8 project owners. Finally, Housing has not attempted collection of overpayments in one case where an owner sold its project during the Alpine Ridge litigation.

Issue Date: October 24, 1996
Audit-Related Memorandum 97-BO-114-0801
File Size: 31KB

Title: Review of Priority Purchaser Status, Yorkshire Village Apartments, Houston, Texas

Our review disclosed no evidence to suggest that the seller and the non-profit purchaser are a related party as defined in HUD's Preservation Letter Number 8. However, we found that the seller and consultants orchestrated the sale of Yorkshire Village to a non-profit group, created by them, who has had little to no involvement with the POA process and are not supported by the residents. As such, we have concerns that the best interests of the property, the residents, and the community are not being met. Further, our review disclosed concerns with the processing of the sale performed by the HUD Houston Area Office.

Issue Date: September 30, 1996
Memorandum No. 96-DP-166-0002
File Size: 55KB

Title: Management Study: Multifamily Information Systems

We conducted a study to review Multifamily's past and current efforts to build information systems to support its program operations. This study was not done on any one particular individual system. Instead, it was a general look at the basic processes of systems building within Multifamily. Our purpose for this study was to try to determine, if possible, the root causes which are preventing Multifamily from developing credible, effective information systems. We discuss what, in our opinion, are these causes and the possible solutions in our report. We believe the conditions described in the report merit the attention of agency senior management because they could prevent successful development of useful information systems for Multifamily.

Issue Date: September 24, 1996
Audit Case Number 96-FW-111-0002
File Size: 76KB

Title: Audit of Multifamily Asset Management Operations, Dallas Area Office

The audit identified ineffective supervision as the primary cause for serious problems found at the Asset Management Branch. Supervisors did not establish adequate controls or procedures; provide adequate guidance to staff; properly plan, prioritize, or oversee staff activities; or efficiently use staff and other resources.

Issue Date: September 16, 1996
Audit Case Number 96-SF-177-0003
File Size: 114KB

Title: Review of Resolution of OIG Audit Recommendations

We completed a multi-field office review of audit resolution procedures and practices used by HUD management since April 1, 1994 to close OIG audit recommendations. This report includes two findings with recommendations for corrective action.

Issue Date: August 28, 1996
Audit Related Memorandum 96-SF-119-0806
File Size: 14KB

Title: Interim Report, Review of Preservation Activities, Kukui Towers, Honolulu, Hawaii

Although our review continues, the selection of the priority purchaser for Kukui Towers appears to be contrary to existing requirements and lacks the requisite resident support. Also, the $40 million capital grant attached to the preservation efforts appears to exceed the current value of Kukui Towers. Since the capital grant for Kukui Towers will be recaptured by September 30, 1996 if the sale to a priority purchaser is not accomplished by that date, your immediate attention to Kukui Towers is essential.

Issue Date: August 23, 1996
Audit Related Memorandum 96-FW-151-0801
File Size: 29KB

Title: Single Family Property Disposition, Homeless Initiative

The Homeless Initiative is not an effective Program for helping the homeless become self sufficient. Weaknesses endemic to the Program leave it vulnerable to abuses such as providers housing ineligible tenants. Because the Homeless Initiative does not receive any direct HUD funding, HUD does not consider the Program to be a priority. Yet, to adequately monitor the Homeless Initiative, HUD must invest significant staff time in the Program, which it does not have, by diverting staff from higher priority programs that receive funding. The Homeless Initiative would benefit by being administered by only one Office. However, both CPD and Housing have expressed reservations about being solely responsible for the Program. HUD has tried to correct programmatic flaws since 1993. Nonetheless, the flawsidentified in 1993 still exist in 1996. For these reasons, we recommend that HUD eliminate the Homeless Initiative Program.

Issue Date: August 15, 1996
Audit Report Number 96-DE-107-0001
File Size: 70KB

Title: Indian Housing Authority Cash Probes, Office of Native American Programs

We found that Indian Housing Authorities' management over cash assets can be enhanced with the joint efforts of Authority staff and HUD Office of Native American Programs staff. With increased knowledge and focus on cash management controls by both Authorities and HUD, opportunities for diversion, fraud, and abuse can be decreased. HUD can accomplish this by increasing its focus on cash management controls when providing technical assistance and guidance to Indian Housing Authorities.

Issue Date: August 8, 1996
Audit Report Number 96-SF-113-0002
File Size: 41KB

Title: Acorn II Project, HUD-Owned Multifamily Project, Oakland, California

We have audited the financial statements of the Acorn II project, a HUD-owned multifamily project located in Oakland, California. The financial statements cover the period of December 31, 1991 through September 30, 1995. The audit did not disclose any issue requiring HUD action.

Issue Date: August 8, 1996
Audit Report Number 96-SF-113-0001
File Size:61KB

Title: Acorn I Project, HUD-Owned Multifamily Project, Oakland, CA

We have audited the financial statements of the Acorn I project, a HUD-owned multifamily project located in Oakland, California. In our opinion, the financial statements are presented fairly and in conformity with generally accepted accounting principles.

Issue Date: July 31, 1996
Audit Report Number 96-FW-151-0001
File Size: 96KB

Title: Single Family Homeless Initiative, New Orleans Field Office Oversight of Safety Net, New Orleans, Louisiana

In response to Congressional and Secretarial requests, we audited the New Orleans Field Office's oversight of Safety Net, a nonprofit organization in Baton Rouge, Louisiana. Safety Net administered HUD's Single Family Property Disposition Homeless Initiative. The requestors wanted to know whether Safety Net had complied with the Homeless Initiative regulations and guidelines, and whether the New Orleans Field Office had properly carried out its oversight responsibilities of Safety Net. Safety Net had not complied with the Homeless Initiative regulations and guidelines, and the New Orleans Field Office's oversight was seriously deficient. Consequently, the Homeless Initiative's purpose of assisting the homeless by providing transitional housing and supportive services was not met. Instead, the New Orleans Field Office allowed Safety Net to abuse the program by leasing properties to relatives, employees, and individuals that did not meet the definition of homeless.

Issue Date: July 15, 1996
Audit-Related Memorandum 96-AT-221-1823
File Size: 113K

Title: Interim Report, Section 203(k) Rehabilitation, Home Mortgage Program

We have not completed our review. To date, however, our results show that extensive program abuse is occurring around the country by lenders, investors, and non-profits. The 203(k) Program, as currently designed, is too risky because it permits investors, non-profits, and lenders to walk away with big profits leaving HUD liable for the mortgages. The rehabilitation work is far from satisfactory. High claims and defaults are occurring on loans to investors and non-profits and seem likely to increase.

The 203(k) Program is highly vulnerable to waste, fraud, and abuse by investors and non-profit borrowers. The program design encourages risky property deals, land sale schemes, overstated property appraisals, and phony or excessive fees, and does not adequately safeguard HUD's interests. Moreover, participation by investors and non-profits does not appear to promote HUD's objective -- to restore and preserve existing housing in an effective, efficient, and economical manner. The abuses have not been isolated to any one person, group, or area of the country. As demonstrated by our examples, this program seems to be viewed by some as merely a means to turn a quick profit.

Our results show that investors and non-profit borrowers have carried out fraudulent or otherwise unnecessary land transactions to generate money for either the borrower or identity-of-interest (IOI) parties. They have not made required downpayments. They have obtained loans on properties which did not need significant repairs and should not have been in the program. Investors have been paid for rehabilitation work that was not performed. Non-profit borrowers have obtained large numbers of loans and have been unable to complete the work. Non-profit borrowers have also made large profits, contrary to their stated motivation. Unfortunately, mortgage lenders have contributed to the abuse. One large lender, for example, has repeatedly circumvented HUD loan origination requirements to assist otherwise unqualified borrowers in obtaining loans and has charged ineligible and unsupported fees.

The involvement of investors and non-profit organizations in the 203(k) Loan Program unnecessarily increases HUD's risk of loss to the insurance fund from defaults. Of the loans we reviewed, too few homes had been properly rehabilitated and timely occupied. In addition, we computed excessive profits and ineligible fees totaling about $3.3 million in 291 loans -- a cost ultimately passed on to a homeowner or to HUD and the taxpayer in the case of a default. We believe that HUD should immediately disqualify investors just as it has done in the 203(b) Loan Program and take other precautions to prevent the program abuse that is occurring.

Issue Date: June 12, 1996
Audit Report Number: 96-BO-123-0001
File Size: 56KB

Title: Controls Over Real Estate Asset Manager (REAM) Contracts, Massachusetts State Office

The Real Estate Owned (REO) Branch needs to develop controls to evaluate Real Estate Asset Manager (REAM) contractors' performance to assure the risk relating to HUD-Owned single family properties is sufficiently limited.

Issue Date: May 13, 1996
Audit-Related Memorandum 96-AO-176-0801
File Size: 173KB

Title: Review of HUD Implementation of Federal Lobbying, Restrictions Public Law 101-121

Our limited review found HUD to be in general compliance with the Byrd Amendment.

Issue Date: May 13, 1996
Audit-Related Memorandum 96-AO-169-0802
File Size: 68KB

Title: Limited Review on HUD's Management of the Workers', Compensation Program

We performed a limited review of HUD's management of the worker's compensation program and found that improvement can be made in tracking claims and following up with employees once claims have been approved by the Department of Labor.

Issue Date: May 10, 1996
Audit Related Memorandum No. 96-AT-119-0801
File Size: 42KB

Title: Review of Excess Insurance Proceeds, Southeast/Caribbean

We identified 31 Southeast/Caribbean projects with excess funds totaling $4,703,255.

Issue Date: May 10, 1996
Audit-Related Memorandum 96-SE-119-0802
File Size: 34KB

Title: Review of the Ernst and Young Database for the Multifamily Portfolio Reengineering Model

For the 56 projects we found 423 differences out of the 3,864 elements included in our testing (Attachment A.) However, only 114 of the 423 differences noted were significant, i.e., more than a 5 percent difference (Attachment B.) Also, when we ran our data through the cash flow model the difference in total costs for 54 of the 56 projects was about 3 percent. However, differences in the costs for individual projects can be significant (over 5 percent).

Issue Date: May 7, 1996
Audit Related Memorandum 96-BO-111-0801
File Size: 48KB

Title: Boston Safe Neighborhood Action Plan, Boston, MA

Our review disclosed that the Boston SNAP Initiative is a successful model in bringing diverse groups together for the purpose of implementing crime reduction strategies at HUD multifamily projects.

Issue Date: April 25, 1996
Audit Related Memorandum 96-SF-123-0804
File Size: 56KB

Title: Review of Santa Ana Area Office's Property Disposition Branch, Santa Ana, California

Our review disclosed that the various concerns of potential mismanagement were unsubstantiated except that the SAAO allowed 10 of 114 properties reviewed to receive FHA insurance even though they did not meet minimum property standards.

Issue Date: April 3, 1996
Audit-Related Memorandum 96-SE-182-0801
File Size: 72KB

Title: Performance Measurement

In response to GPRA, HUD is in the process of identifying and implementing performance measures and developing information systems to accumulate and report on the Department's progress toward meeting those measures.

Issue Date: April 2, 1996
Audit Report Number 96-AO-121-0002
File Size: 38KB

Title: Review of Selected Aspects of the Single Family Assignment Program

Our report contains one finding which discloses opportunities for more effective operation of the Single Family Assignment Program.

Issue Date: March 28, 1996
Audit Report Number 96-SE-119-0002
File Size: 84KB

Title: Review of Savings from FAF Bond Refundings

For the most part, the housing agencies we reviewed were using or planning to use their savings in accordance with the McKinney Act requirements, and HUD was receiving the amount due. However, some agencies used or planned to use some of their savings for costs not specifically related to housing, and HUD was not in all cases properly accounting for its share of the savings. Our report includes recommendations for improvement that should, when implemented, give HUD greater assurance that the savings from bond refundings are used consistent with the McKinney Act requirements, and that HUD will receive all the savings it is due.

Issue Date: March 5, 1996
Audit Report Number 96-DP-166-0001
File Size: 73KB

Title: Controls Over Software Maintenance Must Be Significantly Strengthened

We found that: 1. Project Cost Accounting Must Be Used To Control Software Costs 2. Numerous Controls Needed For Application Software Changes 3. HUD Has Not Been Using Performance-Based Contracting Methods for Software Development and Maintenance Contracts

Issue Date: January 11, 1996
Audit-Related Memorandum 96-SF-119-0803
File Size: 86KB

Title: Review of Section 223(f) Refinancing Country Village Apartments, Project No. 143-11012, Riverside, California

We concluded that LAAO did not complete all specified processing procedures for approving the Section 223(f) loan; however, LAAO's deviations from HUD requirements did not result in any material adverse impact on HUD or other program participants. Although HUD Headquarters requested that LAAO expedite the processing of Country Village's application, LAAO received no instructions from HUD Headquarters to skip any processing procedures. Based on the results of our review, we believe that HUD procedures for processing Section 223(f) loan applications are adequate to protect HUD's interest; therefore, additional guidance to HUD field offices is not needed.

Issue Date: December 14, 1995
Audit Report Number 96-AO-101-0001
File Size: 68KB

Title: Audit of Notice of Fund Availability Process, Office of Public and Indian Housing, Washington, D.C.

Our report contains one finding which discloses that PIH did not always follow the HUD Reform Act of 1989 in processing the NOFAs for the 1994 funding cycle for MROP and FIC programs.

Issue Date: November 22, 1995
Audit Related Memorandum 96-CH-111-0801
File Size: 54KB

Title: Illinois State Office's Follow-Up Actions On Multifamily Project Financial Statements

We concluded that the Illinois State Office was adequately utilizing the information provided by the Ervin reports.

Issue Date: November 13, 1995
Audit Case Number 96-SE-119-0001
File Size: 31KB

Title: Section 232 Nursing Homes, The Americana and Monticello Hall, Office of Housing

Our report shows the adverse affect to HUD when: a) the sole asset requirement is waived; b) Uniform Commercial Code documents are not properly filed; c) the language of the security agreements is overly broad; and d) project bed authority is not adequately protected. The report also raises the issue of whether HUD's risk in insuring nursing homes is growing because of a shift in the way that long-term care is provided.

Issue Date: October 31, 1995
Audit Related Memorandum 96-SF-111-0801
File Size: 88KB

Title: Limited Review of LAO Monitoring of Finley Square Cooperative Los Angeles, CA

We found that the LAO could have more closely monitored the project's physical and financial condition, and if it had done so it might have ensured more timely corrective actions by the management agent and owners to improve deficiencies in both areas.

Issue Date: August 31, 1995
Audit Report Number: 95-HQ-154-0002
File Size: 56KB

Title: Audit of Empowerment Zone, Enterprise Community and Economic Development Initiative Grant Selection Processes

This report presents the results of our audit of the Empowerment Zone (EZ) and Enterprise Community (EC) designation process. We also included the Economic Development Initiative (EDI) grant award process in our audit, because of its close ties to the EZ/EC designation process. Our primary objective was to determine if fair and equitable processes were developed and followed in making all EZ/EC designations and awards of EDI funds in accordance with statutory requirements. The audit was initiated at the request of Senator Bond, Chairman of the Senate Appropriations Subcommittee on Veterans Affairs, HUD and Independent Agencies, and Senator Mack, Chairman of the Senate Banking, Housing and Urban Affairs Subcommittee on Housing Opportunity and Community Development.

The processes used in making EZ/EC designations and EDI grant awards did not provide reasonable assurance that the best eligible applications were selected for benefit designations and funding awards. The original process designed for making EZ/EC designations was not fully followed, and the nature of alternative procedures used was not described in writing. More importantly, assessments of the eligibility, as well as an application's relative rating and ranking against other applications, were inadequately documented to enable an independent reviewer to determine the bases for decisions made.

As a result of these process weaknesses, we were unable to satisfy ourselves as to the basis for or reasonableness of:

1. The final designation of 6 EZs from a total of 22 EZ applications which were generally categorized as "strong" by the application review process,

2. The final selection of 14 EC applications which were categorized as "weak" or no longer under further consideration by the application review process, and

3. A decision to limit EDI grants to 6 strong rated EZ applicants who did not receive EZ designations. Revised: June 11, 2002.