Statement of Angela M. Antonelli
October 3, 2002
Chief Financial Officer
before the US House of Representatives
Committee on Government Reform
Subcommittee on Government Efficiency,
Financial Management, and
"REDUCING THE RISK OF IMPROPER PAYMENTS"
Chairman Horn and Subcommittee members, I thank you for the opportunity
to appear before you today to discuss the US Department of Housing
and Urban Development's (HUD) initiatives to identify and reduce
erroneous payments. Every dollar that HUD pays in error is a dollar
that is not available to serve the intended low-income beneficiaries
of our critically needed housing and community development programs.
Reducing erroneous payments is a priority for Secretary Mel Martinez
and his leadership team at HUD. I applaud your efforts, Mr. Chairman,
to reduce erroneous payments by the Federal government.
am pleased to appear before you today with representatives from
the U. S. Department of Education and the U. S. General Accounting
Office (GAO). HUD and other agencies are focused on erroneous payment
reduction to improve financial performance under the President's
Management Agenda. The GAO has provided useful guidance for more
effective management of erroneous payments by Federal agencies.
The GAO's audit work at HUD has also been instrumental in identifying
vulnerable areas in need of stronger internal controls to reduce
the risk of erroneous payments. I am pleased to report that HUD
is making real progress in strengthening internal controls and reducing
the risk of erroneous payments. My testimony today will focus on
HUD's efforts to reduce the risk of erroneous payments in two known
areas of vulnerability-government credit cards and multifamily housing
property management services-and to better manage improper payments
in all programs in the future.
Under the direction of the Office of Management and Budget (OMB),
there has been a government-wide focus on reducing travel and purchase
credit card abuse by Federal employees. HUD had a recognized travel
credit card payment delinquency problem when I became HUD's CFO
in July of 2001. My office administers HUD's Travel Credit Card
Program and I believe that aggressively addressing such issues is
important in creating a culture of accountability at HUD. In September
2001, the Department had travel card delinquency balances in excess
of 60 days totaling $389,000. The Secretary made it clear that this
was completely unacceptable. Our corrective actions included: automating
our travel form processing to improve the timeliness of travel voucher
payments to staff, educating our staff on travel regulations, strengthening
our management oversight of payment delinquencies, and using administrative
payroll off-set or wage garnishment for egregious cases. The Department
has been tracking travel delinquencies every month since September
2001, and I am pleased to report that our aggressive actions reduced
the monthly delinquent balance to a current figure around $15,000
per month. This is a 96 percent reduction from the September 2001
reported in the July 8, 2002 issue of the Federal Times, HUD and
the Department of Justice are tied for first place with the lowest
travel card delinquencies, with only 1 percent delinquent versus
a 6 percent government-wide average. It is clear HUD's travel card
users now understand the rules and follow them, with appropriate
management oversight to assure they do.
story on its Purchase Credit Card Program is not yet as good, but
it will be. HUD's Office of Administration administers the purchase
card program. The new administration's Assistant Secretary for Administration,
who is providing necessary leadership in this area, was not confirmed
until March of 2002.
April 18, 2002, the Director of OMB requested that all agencies
review the adequacy of their internal controls over purchase card
use and establish remedial action plans to address any deficiencies
identified. The remediation plan developed by HUD and approved by
OMB included the following actions to strengthen controls and reduce
the risk of erroneous payments:
- Enhanced Program Management Capacity - through an increase
in the number of staff with responsibility for: credit card account
management, monitoring transactions, training cardholders and
approving officials, conducting internal audits and reviews, and
preparing credit card policies and procedures. HUD has already
assigned a staff person to perform internal audits of purchase
card program activity to assure compliance with requirements.
- Increased Use of Automated Monitoring Tools - by coordinating
with the servicing bank to develop a rollout plan to train cardholders,
approving officials, and reviewers on the use of the automated
credit card system at their respective access levels. Use of the
automated credit card system will greatly enhance the monitoring
effort. Cardholders will be able to review and run reports on
their transactions, enabling them to quickly detect errors and
initiate the dispute process. Approving officials can manage more
efficiently with the ability to review cardholder statements in
real time versus 30 days after the purchase. Daily monitoring
by program administration staff can ensure that instances of long-term
cardholder abuse do not occur, and that split purchases are detected
and eliminated. Frequent organizational audits will ensure that
all organizations within HUD are being reviewed and monitored
on a regular and consistent basis.
- Improved Program Guidance and Communication - by creating
a handbook supplement to synopsize cardholder and approving official
responsibilities and clearly defining each level of accountability.
The supplement will contain a comprehensive list of the penalties
for various types of misuse, abuse, and fraud to raise staff awareness.
It will also include a checklist of dos and don'ts of the purchasing
and approval process that will be required to become part of the
files maintained on each credit card transaction. Cardholders
and approving officials will be required to certify that they
have read and understood the content.
- Validation of Purchase Card Need - through periodic
reviews of the use of each purchase card to verify that the need
for the card is still valid, the spending limits are appropriate
for the purchasing needs, and the delegations of authority for
single purchase spending limits above $2,500 are current. This
will be achieved by reviewing past transactions and interviewing
cardholders, approving officials, and budget staff, as necessary.
The assurance that all cards are necessary and are designated
to purchase specific goods or services will make the monitoring
effort less cumbersome and make purchasing irregularities easier
to detect. Top-level management will be actively involved in the
oversight of the program and held accountable for the cards assigned
to his/her program area. We will take immediate corrective actions,
where needed, to include closing accounts, decreasing or increasing
spending limits, changing cardholders and approving officials,
In early July 2002, the GAO briefed HUD on the results of their
erroneous payments vulnerability assessment on HUD's $10.2 million
of purchase card program activity in fiscal year 2001. GAO advised
HUD of four internal control deficiencies observed during their
review. In essence, HUD's system of internal control in fiscal year
2001 did not provide reasonable assurance that: 1) adequate supporting
documentation was maintained for individual purchases, 2) individual
purchases were properly reviewed and approved, 3) split purchases
were prohibited, and 4) records on purchase cardholders and approving
officials were current and accurate. While HUD made some program
improvements in fiscal year 2002, such as blocking Merchant Category
Codes that are clearly not business related, we acknowledge the
need to strengthen our purchase card controls to address the issues
raised by the GAO.
HUD views the GAO finding on the lack of adequate supporting documentation
for purchase card purchases as a serious matter of non-compliance
with existing purchase card program requirements. As a result, the
Office of Administration has initiated interim action to advise
all purchase cardholders of the need to use the HUD Form 10.4, "Requisition
for Supplies, Equipment, Forms, Publications and Procurement Services"
to clearly document a description of the purchase, the business
need for the purchase, and the required approval of the purchase.
Failure to maintain such required documentation would result in
the cardholder's loss of the purchase card and possible other appropriate
HUD will work with the GAO and the OMB to further improve its purchase
card program remediation plan to include other actions that will
fully address the issues raised by the GAO. The Office of Administration
has begun implementation of its remediation plan and our schedule
for completing implementation has been expedited in light of the
GAO's findings on the risks apparent in fiscal year 2001. I believe
that the implementation of these new strategies and procedures will
strengthen our processes and controls to adequately reduce the risk
of erroneous payments in HUD's Purchase Credit Card Program.
Multifamily Housing Property Management Services
The GAO also recently performed a vulnerability assessment of
payments for contracted services for the management and maintenance
of the HUD-owned multifamily housing property inventory. At GAO's
first presentation of its findings to the Department, GAO informed
the HUD staff that GAO's Office of Special Investigation and HUD's
Office of the Inspector General (OIG) had begun an investigation
of the GAO findings. The GAO advised HUD not to pursue any of the
project specific findings or question any of the contractors regarding
the GAO findings because of the ongoing investigations. Based on
the continuing investigation, it was not possible for HUD staff
to review many of the project specific findings, and we are therefore
not able to comment on them. However, I can discuss the procedural
changes that are underway at HUD and have been underway for several
The GAO review indicated deficiencies in the Department's oversight
of the contracts for property management services. Prior to the
GAO's reporting of the results of its review of the multifamily
property management activities, the Department had already initiated
several actions that would bring greater control and accountability
to these functions. The GAO assessment reinforced the need for better
internal controls and more detailed oversight of the property management
In the next several weeks, HUD staff will be revising the guidance
and policies and procedures in reference to the Department's oversight
of these property management contracts. The Department will be adding
additional controls (e.g., a semi-annual audit of each contractor),
conducting additional Government Technical Monitoring and Government
Technical Representative training for HUD staff, and providing clearer
and more concise guidance.
Since the GAO conducted its initial reviews with HUD's Atlanta
and Forth Worth Property Disposition Centers and discussed its areas
of concern, the Department has modified the current contract with
the property management Oversight Contractor to include new inspection
and procurement assessment requirements that will assist the Centers
in their oversight of the Property Management Contractor's procurement
The new requirements require the Oversight Contractor to perform
the following activities:
- Review the Property Manager's procurement activities, including
- Perform on-site reviews of subcontract work, services, and deliverables
to assure compliance with the terms and conditions of the Property
Managers' subcontracting requirements, on a random sampling basis.
- Perform on-site comparisons of subcontractor billings to work
performed, on a random sampling basis.
- Review the Property Manager's subcontracting file documentation
and on-site invoices to assure that work orders were not deliberately
split to avoid competition and/or HUD approval.
- Perform physical inspections of completed subcontracted work
to compare work orders to actual work performed, and produce both
written and photographic records of significant work items actually
completed, on a random sampling basis.
Notwithstanding GAO's request to not conduct specific inquires
into the issues raised in the GAO review, the magnitude of these
property management contracting activities required HUD to take
some very proactive steps to assure that on-going procurement activities
were and are being properly performed. The Atlanta Property Disposition
Center's staff have begun analyzing a voluminous printout that lists
all the purchase orders issued by the Center's Property Management
Contractor to determine if the contractor is conducting its procurement
activities under the terms of the Property Management Contract.
Where irregularities are found, they will be brought to the contractor's
attention for appropriate action. Additionally, upon completion
of the HUD OIG and GAO investigations, the Atlanta Property Disposition
Center will contact the contractor and address the irregularities
identified in the GAO's report.
HUD is in the process of procuring new property management contractors
nation-wide to manage the mortgagee-in-possession and HUD-owned
properties. These new contractors should begin work on January 1,
2003. The Department has significantly strengthened the requirements
for oversight and management in the new property management contracts
that are out for solicitation. The new contracts have increased
the contractor's oversight responsibilities, particularly in the
areas of quality controls and subcontracting activities. Some of
these new requirements include:
Other revisions were made to the new contract documents to better
address the Department's need for improved quality control under these
contracts, such as:
- Provide an upfront Quality Control (QC) Plan for the overall
operation of the Property Management Contract. The Plan will establish
written procedures to monitor work assignments of employees and
subcontractors, inspect work completed, and ensure compliance
with the Property Management Contract as well as Federal, state,
and local laws and regulation.
- Provide photographic documentation to accompany all inspections
of significant work or subcontracted work.
- Perform yearly audits of on-site subcontracting activities,
on a project-by-project basis.
- A definition of what constitutes an emergency repair, which
was lacking in the old Property Management Contracts. (Emergency
repair is defined as a situation where life, health or property
is in danger and immediate action is needed to eliminate or mitigate
the dangerous conditions.)
- Additional language to emphasize the importance of procurement
planning to avoid costly emergency acquisitions.
- The use of long-term, indefinite delivery subcontracts to consolidate
the purchase of routine supplies and recurring services.
- An expanded list of the types of documents to be included in
- Expanded requirements for monthly subcontracting reports and
- The Property Manager must conduct internal audits of the subcontracting
activities performed at each project site and submit annual reports
to HUD's Contracting Officer.
The combination of these actions to improve the quality control
activities of HUD staff, HUD's Oversight Contractor and the Property
Management Contractors themselves, will greatly reduce the risk
of erroneous payments in the Department's future multifamily property
Management of Erroneous Payments
While the focus of today's hearing was on the GAO's erroneous
payment vulnerability assessment work at HUD and the Department
of Education, it is important to note that HUD is addressing erroneous
payments in areas other than its government credit card and multifamily
housing property management contracting. HUD embraces the content
of the GAO's October 2001 Executive Guide on "Strategies to Manage
Improper Payments - Learning From Public and Private Sector Organizations."
As referenced in the GAO's August 2002 report on "Financial Management
- Coordinated Approach Needed to Address the Government's Improper
Payments Problems," HUD is addressing erroneous payments in its
largest programs area-rental housing assistance.
The rental housing assistance programs area constitutes over two-thirds
of HUD's budget authority, with over $21 billion of expenditures
in fiscal year 2001. Our actions to identify and address erroneous
payments in this programs area closely follow the model espoused
in the GAO guide on managing erroneous payments. In this regard,
we have established a baseline error measurement. The combined effect
of the estimated assistance overpayments and underpayments attributed
to program administrator processing errors and tenant underreporting
of income yielded a net annual assistance overpayment estimate of
over $2 billion. Secretary Martinez established a Department-wide
task group to develop a comprehensive strategy to address the underlying
causes of these erroneous payments. This strategy calls for the
provision of improved program guidance and training, development
of automated processing tools, increased income data sharing, enhanced
incentives and sanctions, the pursuit of program simplification,
and increased monitoring. The Department will continue to track,
measure and report on its progress in reducing these erroneous payments.
The President's Management Agenda establishes an overall goal of
a 50 percent reduction of the estimated $2 billion in net annual
overpaid rental housing assistance by 2005. HUD will need the support
of OMB and the Congress to provide us the tools and resources needed
to meet this goal. Of particular importance is the need for statutory
authority to perform computer matching with available Federal sources
of income data for use by HUD and HUD's program administrators in
correctly calculating housing assistance.
HUD's leadership places a strong emphasis on high ethical standards
and accountability in our program administration. We will continue
to focus on reducing the risk of erroneous payments in our rental
housing assistance programs area and to address other internal control
deficiencies identified by the GAO and OIG. In addition, we will
increase the efforts of HUD managers to assess erroneous payment
risk in other areas, and to strengthen controls where it is cost-beneficial
and feasible within HUD's budgetary resources.
That concludes my testimony. I look forward to working with the
OMB, the GAO and the Congress in the continued pursuit of cost-effective
solutions for identifying and reducing erroneous payments at HUD.
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