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Report to Congressional Addressees: 

United States Government Accountability Office:
GAO: 

June 2009: 

Public Housing: 

HUD's Oversight of Housing Agencies Should Focus More on Inappropriate 
Use of Program Funds: 

HUD's Oversight of Public Housing Funds: 

GAO-09-33: 

GAO Highlights: 

Highlights of GAO-09-33, a report to congressional addressees. 

Why GAO Did This Study: 

The Department of Housing and Urban Development (HUD) provided over 
$6.7 billion in fiscal year 2008 to housing agencies to operate, 
modernize, and develop about 1.2 million public housing units. It is 
important that HUD exercise sufficient oversight of housing agencies to 
help ensure that public housing funds are being used as intended and 
properly managed. In this report, GAO examines HUD’s oversight 
processes for detecting housing agencies at risk of inappropriate use 
and mismanagement of public housing funds. GAO analyzed HUD financial 
data on about 3,300 housing agencies, compared HUD’s oversight policies 
with program and agency objectives, and interviewed agency officials. 

What GAO Found: 

Key HUD oversight processes could be more focused on identifying 
potential inappropriate use or mismanagement of public housing funds. 
HUD primarily relies on single audits to identify such problems, 
although HUD, its Office of Inspector General (OIG), and the President’
s Council on Integrity and Efficiency (now known as the Council of the 
Inspectors General on Integrity and Efficiency) have identified 
weaknesses with some audits. Further, even when these audits do 
identify issues, HUD does not systematically summarize audit findings 
to identify and understand emerging and persistent issues to better 
monitor housing agencies for inappropriate use and mismanagement of 
public housing funds. Understanding these problems could be useful for 
identifying housing agencies that are at greater risk of 
inappropriately using or mismanaging public housing funds. HUD uses the 
Public Housing Assessment System (PHAS) to monitor and rate the overall 
condition and financial health of public housing agencies. However, 
PHAS is not intended to identify inappropriate uses of public housing 
funds and is limited in its ability to detect potential mismanagement. 
HUD also analyzes the financial data of public housing agencies, but 
its review focuses on the accuracy and completeness of the information 
used to calculate PHAS scores. GAO analyzed financial data from the 
housing agencies and found many housing agencies showed indicators that 
they were at risk of potential inappropriate use and mismanagement of 
public housing funds—while most received passing PHAS scores. For 
example, GAO found that from 2002 to 2006, 200 housing agencies had 
written checks for more than the funds available in their bank accounts 
(bank overdrafts) on average of $25,000 or more. However, 75 percent of 
these agencies received passing PHAS scores (see figure below). Such 
overdrafts raise questions about these agencies’ cash management. But 
HUD does not use these and similar measures to identify housing 
agencies at greater risk of inappropriately using or mismanaging public 
housing funds. Without fully leveraging the audit and financial 
information it collects, the department limits its ability to identify 
housing agencies that are at greater risk of inappropriately using or 
mismanaging program funds. 

Figure: PHAS Scores for the 200 Housing Agencies with Average Bank 
Overdrafts of $25,000 or More: 

[Refer to PDF for image: pie-chart] 

Housing agencies with passing PHAS score: 74.5%; 
Housing agencies with substandard PHAS score: 24.5%; 
Housing agencies with no PHAS score: 1.0%. 

Source: GAO analysis of housing agency financial data schedules and HUD 
data. 

[End of figure] 

What GAO Recommends: 

To better focus its oversight processes to identify housing agencies at 
risk of misuse and mismanagement of public housing funds, GAO 
recommends that HUD (1) regularly summarize and evaluate the results of 
audits of public housing agencies to identify common problems, monitor 
emerging issues, and evaluate overall monitoring and oversight 
processes; and (2) develop mechanisms—such as financial indicators—and 
use them as part of its ongoing monitoring and review of housing 
agencies’ use of public housing funds. 

In agency comments, HUD stated that the report contains useful 
information and plans to evaluate alternative ways to address our 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-09-33] or key 
components. For more information, contact Mathew J. Scirè at (202) 512-
5555 or sciremj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

HUD's Primary Oversight Processes Could Be Better Focused to Detect 
Housing Agencies at Risk of Inappropriate Uses or Mismanagement of 
Public Housing Funds: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objective, Scope, and Methodology: 

Appendix II: Comments from the U.S. Department of Housing and Urban 
Development: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Public Housing Assessment System Scoring Subsystem 
Components: 

Figure 2: Percentage of Housing Agencies with Potentially Improper 
Advances of Operating Funds (Balances Due from Other Programs in Excess 
of $100,000), Fiscal Years 2002-2006: 

Figure 3: PHAS Scores for Housing Agencies with Potential Improper 
Operating Fund Advances (Balances Due from Other Programs in Excess of 
$100,000), Fiscal Years 2002-2006: 

Figure 4: PHAS Scores for Housing Agencies with Potential Funds 
Mismanagement (Average Bank Overdrafts in Excess of $25,000), Fiscal 
Years 2002-2006: 

Abbreviations: 

ARCATS: Audit Resolution and Corrective Actions Tracking System: 

FASS: Financial Assessment Subsystem: 

FDS: Financial Data Schedules: 

HUD: Department of Housing and Urban Development: 

MAPS: Monitoring and Planning System: 

MASS: Management Assessment Subsystem: 

MDHA: Miami-Dade Housing Authority: 

OIG: Office of Inspector General: 

OMB: Office of Management and Budget: 

PASS: Physical Assessment Subsystem: 

PCIE: President's Council on Integrity and Efficiency: 

PHAS: Public Housing Assessment System: 

REAC: Real Estate Assessment Center: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

June 11, 2009: 

The Honorable Christopher J. Dodd: 
Chairman: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Robert Menendez: 
Chairman: 
Subcommittee on Housing, Transportation, and Community Development: 
Committee on Banking, Housing and Urban Affairs: 
United States Senate: 

In fiscal year 2008, the Department of Housing and Urban Development 
(HUD) provided approximately $6.7 billion to about 3,300 public housing 
agencies to subsidize the costs of operating, modernizing, and 
developing about 1.2 million units through the public housing program. 
HUD oversees these agencies in cities and communities nationwide to 
ensure compliance with extensive program requirements. Over the years, 
we and HUD's Office of Inspector General (OIG) have identified 
weaknesses in HUD's monitoring of housing agencies' compliance with 
program requirements and in the agencies' accounting practices as well 
as instances of misspent public housing funds. A number of 
recommendations have been made addressing these shortcomings. It is 
important that HUD exercise adequate oversight of housing agencies' use 
of public housing funds, and as a result, we undertook a review of 
HUD's oversight processes under the Acting Comptroller General's 
authority to conduct evaluations on his own initiative. This report 
examines the oversight processes HUD employs to identify housing 
agencies that are at risk of inappropriately using and mismanaging 
public housing funds. 

To evaluate HUD's oversight processes, we compared HUD's oversight 
policies with its programmatic and agencywide oversight goals. We 
analyzed housing agency audits and available HUD financial data on its 
portfolio of housing agencies. We also interviewed HUD headquarters and 
field office officials. Finally, we met with officials from four field 
offices and visited nine housing agencies in California, Florida, 
Maryland, and Washington, D.C. In selecting these sites, we considered 
various factors, including recent allegations of mismanagement of 
public housing funds, the activity and size of public housing programs 
in these locations, and proximity to GAO locations. 

We conducted this performance audit from January 2007 through March 
2009 in Alameda, Monterey, Richmond, and San Francisco, California; 
Miami and Fort Lauderdale, Florida; Baltimore and Prince George's 
County, Maryland; and Washington, D.C. in accordance with generally 
accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on the audit 
objectives. Appendix I provides further details of our objective, 
scope, and methodology. 

Results in Brief: 

Key HUD oversight processes could be more focused to enable HUD to 
identify housing agencies that may be at greater risk of 
inappropriately using or mismanaging public housing funds. The primary 
process that HUD uses to identify inappropriate use and mismanagement 
of public housing funds is housing agencies' single audits.[Footnote 1] 
Although many single audits have reported problems at individual 
housing agencies, HUD has found problems with the quality of individual 
housing agencies' single audits that can limit their reliability. In 
addition, the President's Council on Integrity and Efficiency (PCIE) 
issued a report on its National Single Audit Sampling Project in June 
2007 that presented compelling evidence that a serious problem with 
single audit quality continues to exist.[Footnote 2] Also, annual 
single audits may not assess compliance with some public housing 
program requirements administered by these housing agencies, resulting 
in coverage gaps that may limit the ability of these audits to 
consistently identify misuse and mismanagement of funds in a timely 
manner. Despite these limitations, the department continues to 
primarily rely on single audits to identify potential inappropriate use 
and mismanagement of public housing funds and is focusing on efforts to 
improve their quality. Further, even when single and OIG audits report 
problems, HUD does not maximize the audits' utility by systematically 
summarizing and analyzing audits that report commonly occurring 
problems of misuse and mismanagement. Understanding these problems 
could be useful for evaluating and monitoring HUD's overall monitoring 
and oversight processes and identifying housing agencies that are at 
greater risk of inappropriately using or mismanaging public housing 
funds. For example, the department could use this understanding to 
develop indicators of potential problems and use these to monitor 
housing agencies. The department currently uses a system for monitoring 
and rating the performance of housing agencies--known as the Public 
Housing Assessment System (PHAS). However, PHAS is limited in its 
ability to identify housing agencies that may be at greater risk of 
inappropriate use or mismanagement of funds because it was not designed 
to detect inappropriate use, and in some cases has not detected housing 
agencies showing signs of housing fund mismanagement. Further, HUD has 
stated that its analysis of housing agency financial data is primarily 
intended to ensure the accuracy of the information that is used to 
calculate the housing agencies' PHAS scores and not to identify at-risk 
housing agencies. Our analysis of housing agency financial data 
illustrates how such data could be leveraged to identify housing 
agencies at greater risk of inappropriate use or mismanagement of 
public housing funds that neither PHAS nor the department's current 
approach to analyzing financial data would detect. For example, our 
analysis of PHAS and financial data from 2002 through 2006 found that 
200 housing agencies had written checks that exceeded the funds 
available in their bank accounts (bank overdrafts) by $25,000 or more-
-indicating a potential that these housing agencies could have serious 
cash and financial management problems and could be prone to increased 
risk of fraudulent use of funds. However, 75 percent of these agencies 
received passing PHAS scores. Although HUD has focused its efforts on 
the challenges of improving the quality of single audits, the 
department has not taken steps to develop mechanisms to mitigate the 
limitations of its oversight processes. Without fully leveraging the 
audit and financial information it collects, the department limits its 
ability to identify housing agencies that are at greater risk of 
inappropriately using or mismanaging program funds. 

In order to strengthen its oversight of housing agencies administering 
the public housing program and better leverage information that it 
already collects, we are recommending that the Secretary of the 
Department of Housing and Urban Development regularly summarize and 
systematically evaluate the results of OIG and single audits of public 
housing agencies to allow program managers to identify and understand 
problems of potential inappropriate use and mismanagement of public 
housing funds, identify emerging issues, and evaluate overall 
monitoring and oversight processes. This report also recommends that 
the Secretary develop mechanisms--such as financial indicators--to 
identify housing agencies that are at greater risk of inappropriately 
using or mismanaging public housing funds. 

In written comments on a draft of this report, HUD stated that the 
report contains useful information but that it did not believe our 
recommendations would achieve the objectives of strengthening oversight 
of housing agencies that administer the public housing program and of 
better leveraging information that it already collects. Although it 
provided no specific explanation for why it thought our recommendations 
would not achieve these objectives, HUD stated that more analysis of 
its existing oversight mechanisms and information collected from 
housing agencies should be performed in order to evaluate and develop 
possible alternatives. We welcome HUD's efforts to reconsider the 
mechanisms and data it uses to oversee housing agencies, but disagree 
with its statement that our recommendations do not help achieve these 
objectives. We believe the recommended actions present a reasonable 
first step in leveraging information it already collects and permit HUD 
to better focus its limited resources. 

Background: 

Under the U.S. Housing Act of 1937, as amended, Congress created the 
public housing program to provide decent and safe rental housing for 
eligible low-income families, the elderly, and persons with 
disabilities.[Footnote 3] HUD provides subsidies for operating and 
maintaining public housing units through the Operating Fund.[Footnote 
4] HUD also provides funds to modernize and develop public housing 
units through the Capital Fund.[Footnote 5] Public housing agencies 
administer these formula grant programs on HUD's behalf. In using these 
funds, the agencies are responsible for ensuring that the housing is 
affordable to eligible low-income households. In 1992, Congress 
established the Urban Revitalization Demonstration Program, commonly 
known as HOPE VI, which provides grants to housing agencies to 
rehabilitate or rebuild severely distressed public housing.[Footnote 6] 

The Single Audit Act, as amended, requires state and local governments 
and nonprofit organizations that expend $500,000 or more in federal 
awards in a fiscal year to have either a single audit or a program-
specific audit.[Footnote 7] Under a single audit, the auditor must 
report its opinion on the presentation of the entity's financial 
statements and schedule of federal expenditures, and on compliance with 
applicable laws, regulations, and provisions of contracts or grant 
agreements that could have a direct and material effect on the 
financial statements and, when applicable, on any major program of the 
audited entity.[Footnote 8] The auditor must also report the results of 
its review and testing of internal control related to the financial 
statements and major programs as well as a schedule of any audit 
findings and questioned costs. Public housing agencies subject to the 
act must submit audit reports to HUD and to the Federal Audit 
Clearinghouse.[Footnote 9] Single audit is a key assurance process used 
by HUD in its oversight of public housing agencies. Single auditors are 
required by the act to identify and test programs for compliance with 
specific program requirements and report identified findings (or the 
lack thereof), which can include those of inappropriate use and 
mismanagement of funds. HUD's Real Estate Assessment Center (REAC), 
which is responsible for reviewing housing agencies' financial data, 
began tracking the status of single audit findings in 2007 using the 
Monitoring and Planning System (MAPS) Audit Tracking Module. Through 
this tracking system, HUD monitors the resolution of audit findings. 
HUD maintains an additional system, the Audit Resolution and Corrective 
Action Tracking System (ARCATS), to monitor the status of management 
and financial findings issued by our or OIG's recommendations. 

HUD's PHAS is another key oversight process. While single audits may 
identify specific instances of inappropriate use or mismanagement of 
public housing funds, PHAS was developed to evaluate the overall 
condition of housing agencies and measure performance in major 
operational areas of the public housing program. These include 
financial condition, management operations, and physical condition of 
the housing agencies' public housing programs as well as resident 
satisfaction with the programs (see figure 1).[Footnote 10] 

Figure 1: Public Housing Assessment System Scoring Subsystem 
Components: 

[Refer to PDF for image: illustration] 

PHAS components: 

Financial Assessment Subsystem (FASS) 30 points: 
Measures the financial condition of the housing agency to ensure that 
it has sufficient financial resources to provide public housing and is 
managing those resources effectively. 

Management Assessment Subsystem (MASS) 30 points: 
Measures a housing agency’s management operations capabilities by 
assessing certain key responsibilities, including site security, work
orders, and other aspects of management operations. 

Physical Assessment Subsystem (PASS) 30 points: 
Measures the physical condition of each of the housing agency’s 
properties to determine if they are decent, safe, sanitary, and in good 
repair. 

Resident Assessment Subsystem (RASS) 10 points: 
Measures the level of resident satisfaction with the living conditions 
of housing provided by the agency. 

Source: 24 C.F.R. pt 902, Public Housing Assessment System. 

[End of figure] 

The Financial Assessment Subsystem (FASS) component score is based on 
six financial data analyses that HUD has determined to be key in 
evaluating housing agencies' financial condition. These include the 
following: 

* the current ratio, which measures the housing agency's ability to 
cover its short-term obligations; 

* the months expendable funds balance ratio, which measures the housing 
agency's reserves for unexpected expenses; 

* the tenant receivables outstanding, which measures how well the 
housing agency manages rent collections; 

* the occupancy loss, which measures how well the housing agency 
maximizes its revenue by renting out vacant units; 

* the expense management, which measures whether the housing agency has 
adequate cost controls to manage expenses; and: 

* the net income, which measures whether the housing agency is spending 
more than it makes. 

Housing agencies with scores of less than 60 percent in either the 
overall PHAS score (less than 60 points out of a total 100 points) or 
in any one of the major subcomponents, including the FASS (less than 18 
points out of 30 points), are designated as substandard performers, 
also known as troubled.[Footnote 11] For example, points may be 
deducted from housing agencies' FASS scores if the six financial 
analyses indicate that housing agencies are experiencing overall 
financial difficulties that may threaten the stability of the housing 
agency. According to HUD officials, although housing agencies' 
financial data are usually audited, REAC analysts also review financial 
data to ensure the accuracy of information that is used to calculate 
the FASS scores. For example, REAC analysts examine specific line items 
in the financial data, investigate changes or discrepancies in amounts 
reported, and review auditors' notes. 

HUD field offices establish mechanisms to identify and correct 
deficiencies if a housing agency is designated as a troubled performer 
in either the PHAS overall score or the FASS subcomponent. Such 
mechanisms may include the development of an improvement plan or a 
memorandum of agreement. If technical assistance and sanctions fail to 
result in significant improvement within a year, the housing agency is 
referred to the HUD Enforcement Center, which may institute proceedings 
to place the agency in receivership and remove failed agency 
management.[Footnote 12] Receiverships generally result from long-
standing, severe, and persistent management problems that have led to 
the deterioration of the public housing stock. 

HUD's Primary Oversight Processes Could Be Better Focused to Detect 
Housing Agencies at Risk of Inappropriate Uses or Mismanagement of 
Public Housing Funds: 

Persistent Problems with Audit Quality and Gaps in What Audits Cover 
Can Limit HUD's Ability to Detect Misuse or Mismanagement of Public 
Housing Funds: 

Single audits, HUD's primary tool for overseeing the use of public 
housing funds, are intended to, among other things, promote sound 
financial management by serving as a key accountability mechanism in 
the oversight and monitoring of recipients' use of federal funds. 
Single audits provide federal agencies with information on the use of 
federal funds, internal control deficiencies, and compliance with 
federal program requirements. The Single Audit Act that mandated the 
audits does not require the auditors to perform procedures that focus 
specifically on all federal programs that housing agencies administer. 
Instead, auditors are to select and closely audit "major" programs 
administered by the recipient of the funds--typically large or risky 
programs--for compliance with specific program requirements, including 
the appropriate use of funds. In addition to single audits, OIG selects 
various housing agencies to audit as part of its oversight of HUD's 
public housing program. HUD's strategic goals for its public housing 
program call for the department to resolve issues identified by these 
audits and improve its management of internal controls to, among other 
things, eliminate fraud, waste, and abuse. 

However, both HUD's quality assurance office and a recent study 
conducted by PCIE have identified problems with single audits of 
housing agencies. OIG also identified problems with single audits after 
conducting detailed reviews of housing agency operations as part of its 
oversight process. Both OIG's audits and quality assurance reviews by 
HUD have, in some cases, resulted in disciplinary action for single 
auditors. HUD quality control reviews cover housing agency audits as 
well as audits of other entities that receive HUD financial assistance. 
According to data from HUD's Quality Assurance Subsystem, 52 of the 247 
quality assurance reviews it conducted between 2000 and 2008 resulted 
in referrals for firms auditing entities receiving HUD funding. 
According to HUD, many of these included public housing agency audits. 
Examples of problem public housing agency audits include the following: 

* Single audits for the Miami-Dade Housing Authority (MDHA) did not 
identify significant instances of inappropriate use and mismanagement 
of funds. In 2006, a media investigation provided extensive coverage of 
problems with public housing funds at the agency. HUD stated that 
MDHA's single audits should have alerted the department to these 
problems, but they did not. Instead, HUD stated that it learned about 
the allegations of misuse and mismanagement of funds from the Miami 
Herald newspaper in 2006. In response to these allegations, HUD ordered 
a detailed review and new single audit of the housing agency that found 
serious and pervasive financial and management problems, including 
deficiencies in financial management, mismanagement of development 
funds, and several apparent conflicts of interest. MDHA went into 
receivership in 2007, with HUD taking possession and control of all of 
MDHA's activities, including public housing. 

* In 2007, OIG found that the Dallas Housing Authority had inaccurate, 
unreliable, and altered records. Further, OIG noted that the firm 
conducting the 2006 single audit had failed to meet professional 
auditing standards. State authorities took disciplinary action against 
the auditing firm in 2007. According to HUD, the Dallas Housing 
Authority engaged this firm after it had removed an earlier auditing 
firm that had identified problems with the housing agencies' financial 
management. 

* Also in June 2007, PCIE issued its Report on National Single Audit 
Sampling Project, which concluded that there were problems with audit 
quality that needed to be addressed and made recommendations.[Footnote 
13] Specifically, PCIE reviewed a nationwide sample of 208 out of more 
than 38,000 single audits performed on various grant recipients that 
were submitted for the period between April 1, 2003, and March 31, 
2004. According to the HUD OIG, the PCIE sample included single audits 
of 11 housing agencies, of which 6 were determined to be unacceptable, 
1 was found to have limited reliability, and 4 were determined to be 
acceptable, but with deficiencies. 

In a 2007 GAO testimony at a congressional hearing on the PCIE study, 
we noted that problems with the quality of single audits were 
unacceptable and that we were concerned that audits were not being 
conducted in accordance with professional standards and 
requirements.[Footnote 14] We also noted that such audits could mislead 
users of audit reports, causing them to incorrectly conclude that 
agencies were in compliance with program requirements or did not have 
weaknesses in internal controls when in fact such problems might exist 
but had gone undetected. However, we also noted continued support for 
single audits as a key oversight mechanism over federal awards. 

Compounding the problems with the quality of audits is the fact that 
many housing agencies' public housing programs may not have to undergo 
the detailed major program compliance testing that could potentially 
uncover inappropriate use and mismanagement of public housing funds. 
Only entities expending $500,000 or more in federal funding annually 
are required to receive single audits that assess compliance with 
specific program requirements and associated internal controls that 
have a direct and material effect on each major program. Furthermore, 
even when housing agencies receive single audits, not all public 
housing programs will be designated as major programs by independent 
public accountants conducting the single audit. For example, although 
about 76 percent of operating fund dollars were designated by the 
housing agencies' independent auditors as major in 2006, less than a 
third of the housing agencies submitting approved financial data to HUD 
for that year underwent a single audit and had their operating funds 
audited as major programs. Without compensating monitoring tools, gaps 
in coverage at many housing agencies in any one year could allow 
emerging problems to go undetected and unreported by single audits in a 
timely manner. 

HUD has attempted to improve the quality of these audits but has faced 
significant challenges. As noted above, HUD performs quality assurance 
reviews of the independent public auditors who perform the audits. In 
some cases, these quality assurance reviews have led to investigations 
and actions against substandard auditors. HUD officials said that the 
agency could pursue debarment or suspension of poorly performing 
auditors but noted that such remedies were costly and time-consuming. 
Further, efforts to improve audit quality will not address gaps in 
coverage that leave some housing agencies and programs unaudited for 
more than a year. In light of these limitations, fully leveraging other 
useful information becomes key to ensuring more consistent monitoring 
of public housing funds. 

HUD Does Not Systematically Summarize the Results of Audits to 
Understand Problems and Address Vulnerabilities in Its Oversight 
Processes: 

Although the quality and coverage of single audits can be problematic, 
the single audit continues to be an important oversight mechanism. Yet, 
HUD has not fully leveraged how it uses the results of audits to fully 
understand emerging or persistent problems at housing agencies. 
Understanding commonly occurring audit findings could be useful for 
identifying housing agencies that are at greater risk of inappropriate 
use or mismanagement of public housing funds and assessing 
vulnerabilities in HUD's oversight processes. In 2002, we reported that 
summarizing information about the results of single audits and 
identifying commonly occurring issues could be valuable in helping 
management evaluate agency oversight, monitor activities, and identify 
problem areas.[Footnote 15] Further, the Domestic Working Group's Guide 
to Opportunities for Improving Grant Accountability states that 
agencies can summarize the results of internal and external audits for 
program managers to help identify problems with grantees' financial 
management and program operations.[Footnote 16] For example, officials 
from one federal grant program within the Department of Transportation 
stated to us that they had taken such an approach to using audit data 
by summarizing the results of audits to identify recurring issues and 
direct their oversight policies. These officials stated that their 
analysis had identified procurement-related problems as a recurring 
finding area, which resulted in staff conducting grantee workshops and 
technical assistance on federal procurement requirements. 

HUD does track the resolution of individual audit findings for each 
housing agency. Specifically, HUD uses its ARCATS to track the 
resolution of the HUD Inspector General's audit findings. In addition, 
HUD recently developed MAPS to track the resolution of single audit 
findings. However, on the basis of our discussions with HUD officials, 
HUD has not used either ARCATS or MAPS to summarize and systematically 
evaluate the results of audits to understand problems that may commonly 
occur at multiple housing agencies, identify programwide problems of 
inappropriate use and mismanagement of public housing funds, detect 
emerging issues, or address possible vulnerabilities in its oversight 
processes. HUD's systems contain data that categorize the findings of 
single audits in a manner that would allow the agency to identify 
commonly occurring problems across housing agencies. Yet, on the basis 
of our discussions with HUD, the department has not used these data for 
this purpose. 

We conducted an analysis of a sample of 81 OIG and 56 single audit 
reports of housing agencies from 2002 through 2007 and categorized the 
526 audit findings we identified into major categories of inappropriate 
use and mismanagement of public housing funds that we developed. 
Examples of these categories and the number of findings in our sample 
included: accounting issues, including internal control and 
documentation findings (150); inappropriate transfer of operating funds 
to other HUD programs and non-HUD entities, including affiliated 
organizations that were not used for public housing purposes (98); and 
other management issues (41). We also noted that for 14 housing 
agencies where audits identified commonly occurring problems with 
internal control, documentation, and other management issues, 27 of the 
findings reported involved management of cash resources. These findings 
included inadequate separation of duties, fraudulent check writing, and 
theft of cash. 

Such a systematic evaluation of audit results could be useful for 
program managers, helping them to understand commonly occurring 
problems, identify and monitor emerging issues, and address limitations 
in HUD's overall monitoring and oversight processes. Such information 
could also be useful for HUD field offices, housing agency auditors, 
and the housing agencies themselves by alerting them to persistent or 
emerging problems of potential inappropriate use and mismanagement of 
public housing funds. HUD public housing managers in headquarters and 
field offices stated that summarized results of audits would aid in 
helping them carry out their oversight activities. Not effectively 
using readily available information on the results of audits will 
continue to hamper these managers' efforts to monitor housing agencies 
for misuse and mismanagement of funds. 

PHAS and HUD's Internal Analyses of Financial Data Could Be Better 
Focused to Identify Housing Agencies at Risk for Misuse and 
Mismanagement of Public Housing Funds: 

PHAS and HUD's internal analyses of data from housing agencies' 
financial data could be better focused to identify housing agencies 
that are at greater risk of potential inappropriate uses or 
mismanagement of public housing funds. As a result, these oversight 
processes may not alert HUD to potential problems and allow for timely 
monitoring and additional oversight activities that may be warranted. 
PHAS primarily assesses data on management operations and the financial 
health and physical condition of the housing agencies' public housing 
programs and alerts HUD to potentially troubled agencies. For example, 
as noted earlier, PHAS was developed to alert HUD to liquidity problems 
at housing agencies. However, PHAS was never intended to identify 
individual instances of inappropriate use of public housing funds, and 
some potential indicators of liquidity problems may not be detected by 
PHAS. As a result, housing agencies have continued to receive passing 
PHAS scores even when their financial data may indicate that the 
housing agency is at greater risk of inappropriately using funds or 
experiencing serious financial difficulties. HUD has stated that it 
would primarily rely on single audits to identify such problems. 

HUD's policies state that the agency conducts analyses of financial 
data to help improve public housing agencies' financial health and 
provide guidance in identifying possible fraud, waste, and abuse. 
However, HUD told us that it primarily used its analysis of housing 
agencies' financial statements to ensure the mathematical 
reasonableness and completeness of the financial data used to calculate 
housing agencies' PHAS scores. However, we analyzed housing agencies' 
financial data and found that many of these agencies showed signs that 
they may be at greater risk of inappropriately using or mismanaging 
public housing funds, even though the agencies in question received 
passing PHAS scores. 

Potential Inappropriate Use--Improper Advances of Low-Income Public 
Housing Operating Funds: 

Our analysis of data from housing agencies' financial statements 
indicates that many housing agencies receive passing PHAS scores even 
though an analysis of their financial data indicates that these 
agencies are at greater risk of inappropriately advancing their public 
housing program's operating funds to other programs or affiliated 
entities that may not use the funds for public housing purposes. Both 
we and OIG found that financial data could be used to identify housing 
agencies that were potentially at greater risk of inappropriately 
advancing funds in this manner. Specifically, using financial data, we 
identified 837 housing agencies that reported balances in their public 
housing program of over $100,000 as due from other programs--that is, 
operating funds that were advanced or loaned to other programs or 
entities and were potentially not used for public housing purposes--
between 2002 and 2006. The prior HUD OIG work noted that housing 
agencies showing balances in excess of $100,000 as due from other 
programs in their public housing program often inappropriately advanced 
or loaned public housing program funds to other programs or affiliated 
entities--such as nonprofit organizations--without these funds being 
repaid to the public housing program. For example, OIG noted instances 
where public housing funds were advanced inappropriately and used for 
private housing development. In response to these OIG audits, HUD 
reported that it had taken steps to resolve audit recommendations and 
had made referrals for administrative action to be taken against those 
housing agencies. HUD further recognized that housing agencies showing 
large amounts in their due from other funds accounts may warrant 
greater scrutiny and analyses of transactions. 

Our analysis of housing agencies' due from other program accounts shows 
that from fiscal years 2002 through 2006, about 15 to 17 percent of 
housing agencies exhibited this indicator of possible inappropriate 
advances ($100,000 or more as due from other programs). (See figure 2.) 

Figure 2: Percentage of Housing Agencies with Potentially Improper 
Advances of Operating Funds (Balances Due from Other Programs in Excess 
of $100,000), Fiscal Years 2002-2006: 

[Refer to PDF for image: vertical bar graph] 

Year: 2002; 
Percentage: 16.73. 

Year: 2003; 
Percentage: 17.26. 

Year: 2004; 
Percentage: 17.16. 

Year: 2005; 
Percentage: 15.51. 

Year: 2006; 
Percentage: 14.83. 

Source: GAO analysis of housing agency financial data schedules. 

[End of figure] 

While these housing agencies' financial data were showing that these 
agencies were at greater risk of inappropriately advancing operating 
funds, their PHAS scores may not have provided HUD with any indication 
of this potential risk. PHAS assesses the overall management operations 
and the financial and physical condition of the housing agencies' 
public housing programs, but it was not developed to identify potential 
inappropriate use of funds, such as inappropriate advances of operating 
funds. Our analysis found that about 80 percent of the housing agencies 
that reported balances in excess of $100,000 in the operating fund's 
due from other program from fiscal years 2002 through 2006 received 
passing scores in PHAS (see fig. 3). Thus, the PHAS score by itself 
would not identify or trigger any further oversight of housing agencies 
that may be at risk of potential improper advancement of funds. 

Figure 3: PHAS Scores for Housing Agencies with Potential Improper 
Operating Fund Advances (Balances Due from Other Programs in Excess of 
$100,000), Fiscal Years 2002-2006: 

[Refer to PDF for image: pie-chart] 

Housing agencies with passing PHAS score: 79.9%; 
Housing agencies with substandard PHAS score: 19.7%; 
Housing agencies with no PHAS score: 0.4%. 

Source: GAO analysis of housing agency financial data schedules and HUD 
data. 

Note: Some housing agencies are not required to submit PHAS scores for 
various reasons. For example, two housing agencies were not required to 
submit PHAS scores because they are in the Moving to Work program. 

[End of figure] 

HUD officials stated that they would continue to rely on single audits 
to identify improper advances of this nature despite concerns about the 
quality of single audits and gaps in the number of housing agencies and 
programs covered and that they do not conduct specific financial 
analyses to identify housing agencies at risk of inappropriate advances 
of their operating funds. However, HUD does perform analyses of 
financial data to help it identify housing agencies that are at risk of 
improper advances for a HUD rental housing program--the Housing Choice 
Voucher program.[Footnote 17] Specifically, HUD conducts an assessment 
of housing agencies' financial data to identify housing agencies 
reporting transfers of voucher program dollars that warrant additional 
oversight. Analyzing operating fund financial data as it has with the 
Housing Choice Voucher program illustrates how the department could 
leverage opportunities to identify and monitor housing agencies at 
greater risk of inappropriate advances of public housing funds. 

Potential Mismanagement of Funds--Poor Cash Management: 

Our analysis also indicated that some housing agencies showed signs 
that they are at greater risk of mismanaging public housing funds. For 
example, we found that some housing agencies reported check overdrafts 
in their financial data. Our analysis of housing agencies' financial 
data for fiscal years 2002 through 2006 showed 200 housing agencies 
reporting average bank overdrafts of $25,000 or more, and 10 housing 
agencies reporting average bank overdrafts of more than $1 million. The 
vast majority of housing agencies do not show this indicator of 
potential funds mismanagement. In fact, over 92 percent of all housing 
agencies reported no check overdrafts during this period. According to 
HUD's OIG, writing checks in excess of funds available in a housing 
agency's bank account is of concern and could indicate serious cash and 
financial management problems or indicate that the housing agency is 
prone to potential fraud. MDHA provides an example of how check 
overdrafts could have been used as an indicator of serious liquidity 
problems. Specifically, HUD audits noted that MDHA was consistently 
holding checks in a safe after it had written them and reported the 
millions of dollars in these checks as bank overdrafts in the housing 
agency's financial data. HUD officials overseeing the receivership of 
MDHA stated that the housing agency was taking this action because it 
did not have the funds available to meet its financial obligations. 
MDHA's single audits for this period were later determined to be 
substandard, in part because they did not identify an accounting 
misclassification of cash that may have masked the agency's liquidity 
problems. 

HUD officials stated that housing agencies' PHAS and FASS scores were 
used to alert the agency to potential issues with finances and 
liquidity. However, we found that housing agencies' PHAS and FASS 
scores did not reflect the large bank overdrafts that we identified. Of 
the 10 housing agencies reporting bank overdrafts in excess of $1 
million, 7 (including MDHA) received passing PHAS scores. Only 1 had a 
PHAS score indicating that the agency was troubled. Further, MDHA 
received a passing FASS score for 3 of 5 years included in our 
analysis. The remaining 2 agencies were exempted from reporting PHAS 
scores because of their participation under the Moving to Work 
program.[Footnote 18] As shown in figure 4, when we looked at the 200 
housing agencies reporting an average bank overdraft of $25,000 or more 
from 2002 through 2006, we found that nearly 75 percent of these 
housing agencies received passing PHAS and FASS scores. 

Figure 4: PHAS Scores for Housing Agencies with Potential Funds 
Mismanagement (Average Bank Overdrafts in Excess of $25,000), Fiscal 
Years 2002-2006: 

[Refer to PDF for image: pie-chart] 

Housing agencies with passing PHAS score: 74.5%; 
Housing agencies with substandard PHAS score: 24.5%; 
Housing agencies with no PHAS score: 1.0%. 

Source: GAO analysis of housing agency financial data schedules and HUD 
data. 

[End of figure] 

HUD officials stated that they were concerned about housing agencies 
with substantial bank overdrafts but added that overdrafts were not 
flagged for further monitoring because PHAS and single audits were 
expected to detect such poor financial management. However, as we have 
seen, single audits, PHAS, and the department's current approach to 
analyzing financial data do not always detect or alert HUD to housing 
agencies at greater risk of potential inappropriate use or 
mismanagement of public housing funds. This shortcoming underscores the 
importance of leveraging the financial data HUD collects to focus on 
housing agencies at risk of these potential problems. For example, HUD 
could use financial indicators to identify housing agencies that are at 
greater risk of such problems. HUD could then use the information to 
alert its field offices, auditors, and the housing agencies themselves 
to potential problems. Developing such indicators of potential 
inappropriate use and mismanagement could also be a particularly useful 
compensating mechanism for monitoring housing agencies that are not 
subject to single audits and a valuable monitoring tool to mitigate the 
limitations of PHAS. Not fully leveraging the information it already 
has limits HUD's ability to identify potential waste and abuse of its 
resources. 

Conclusions: 

HUD relies on single audits to identify potential misuse and 
mismanagement of public housing funds, and many single audits as well 
as those of OIG have identified such problems. However, concerns about 
the quality of single audits and gaps in the coverage of these audits 
have limited HUD's confidence that single audits will consistently 
identify inappropriate use and mismanagement of public housing funds at 
every housing agency. Although HUD has faced difficulty in making 
improvements to the quality of audits and is aware that many housing 
agencies' public housing programs may not receive annual single audit 
coverage, it has not adapted the way it uses information it collects to 
develop mechanisms to mitigate these limitations. Specifically, HUD 
does not systematically summarize and analyze the types and causes of 
misuse and mismanagement that single and OIG audits do successfully 
identify. Understanding the attributes of these commonly occurring 
problems that single and OIG audits have found could be useful to 
public housing program managers in identifying emerging issues and 
evaluating HUD's overall monitoring and oversight processes. Promising 
practices identified by the Domestic Working Group's Guide to 
Opportunities for Improving Grant Accountability call for such efforts. 
In fact, our review of over 130 audits conducted between 2002 and 2007 
showed almost 100 findings related to inappropriate advancement of 
public housing operating funds to non-HUD programs or entities. 
Summarized results could also be useful to HUD's field offices, 
auditors, and the housing agencies themselves, helping them understand 
emerging and persistent issues in HUD's national portfolio of housing 
agencies and carry out their responsibilities in monitoring public 
housing programs. 

HUD currently uses PHAS to monitor housing agencies, but this system 
has not always identified housing agencies at risk of problems such as 
cash management issues and was not intended to identify inappropriate 
use of public housing funds. Although HUD has developed automated 
checks of housing agencies' financial information to help ensure its 
completeness and accuracy for PHAS, the department has not used these 
checks as a mechanism to identify housing agencies at greater risk for 
potential misuse and mismanagement of public housing funds. HUD itself 
uses such checks to identify potential inappropriate use of its Housing 
Choice Voucher Program funds. Fully utilizing data HUD collects--for 
example, by developing financial indicators to help identify housing 
agencies at greater risk of inappropriately using or mismanaging public 
housing funds--would help in developing tools to compensate for the 
limitations of key oversight processes. 

Recommendations for Executive Action: 

In order to strengthen its oversight of housing agencies administering 
the public housing program and better leverage information that it 
already collects, we recommend that the Secretary of the Department of 
Housing and Urban Development: 

* Regularly summarize and systematically evaluate the results of OIG 
and single audits of public housing agencies to allow program managers 
to identify and understand problems of potential inappropriate use and 
mismanagement of public housing funds, identify emerging issues, and 
evaluate overall monitoring and oversight processes. Summarized results 
of audits should be disseminated to field offices, housing agencies, 
and their auditors to help make them aware of emerging or persistent 
problems and assist them in monitoring and administering HUD's public 
housing programs. 

* Develop mechanisms--such as financial indicators--to identify housing 
agencies that are at greater risk of inappropriately using or 
mismanaging public housing funds. Such mechanisms may be developed 
based on the department's evaluation of commonly occurring and emerging 
issues identified in OIG and single audits of housing agencies and 
developed by leveraging financial information that the department 
currently collects. Once such indicators are developed, the department 
should use them as part of its ongoing monitoring and review of housing 
agencies' use of public housing funds. 

Agency Comments and Our Evaluation: 

In written comments from the General Deputy Assistant Secretary for 
Public and Indian Housing (see appendix II), HUD stated that the draft 
report contains useful information, but that the agency did not believe 
that our recommendations would achieve the objectives of strengthening 
oversight of housing agencies that administer the public housing 
program and of better leveraging information that it already collects. 
Although it provided no specific explanation for why it thought our 
recommendations would not achieve its objectives, HUD stated that more 
analysis of its existing oversight mechanisms and information collected 
from housing agencies should be performed in order to evaluate and 
develop possible alternatives and indicated that it would involve 
Public and Indian Housing parties in developing a more creative and 
comprehensive approach to addressing the issues raised in our report. 
We welcome efforts by HUD to reconsider the mechanisms and data it uses 
to oversee housing agencies and to identify opportunities for improving 
its oversight. However, we disagree with HUD's statement that our 
recommendations do not help achieve the objectives of strengthening its 
oversight and better leveraging the audit and financial information it 
already has. We believe the recommended actions present a reasonable 
first step in leveraging its existing information and permit HUD to 
better focus its limited resources. In fact, as noted in the report, 
the mechanisms that we are recommending for identifying potential 
problems to identify housing agencies that are at risk of inappropriate 
use of funds are already being used by another key HUD rental 
assistance program and by the HUD OIG. Moreover, HUD has in place 
systems that capture the information needed for such analysis. As HUD 
reevaluates its oversight mechanisms and seeks the input of its new 
Assistant Secretary, we believe that thinking about ways of leveraging 
the information it receives from single audits and financial data will 
be helpful in identifying emerging issues related to inappropriate use 
and mismanagement of funds and in providing the oversight necessary to 
address these issues. 

We will send copies of this report to the Secretary of the Department 
of Housing and Urban Development and other interested parties. In 
addition, the report will be available at no charge on our Web site at 
[hyperlink, http://www.gao.gov]. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. 

If you or your staff has any questions about this report, please 
contact me at (202) 512-8678 or sciremj@gao.gov. GAO contact 
information and staff acknowledgments are listed in appendix III. 

Signed by: 

Mathew J. Scirè: 
Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objective, Scope, and Methodology: 

This report evaluates the Department of Housing and Urban Development's 
(HUD) oversight of public housing agencies' use of federal funds to 
operate, modernize, and develop public housing units through the 
Operating Fund, Capital Fund, and HOPE VI programs--the three main 
sources of funding for the public housing program. In 2008, the 
Operating Fund, Capital Fund, and HOPE VI programs provided 
approximately $6.7 billion to housing agencies for capital asset 
management. The objective of this report was to examine the oversight 
processes HUD uses to understand and detect instances of inappropriate 
use and mismanagement of public housing funds. 

We reviewed applicable federal laws and regulations to describe 
permissible uses for the public housing funds within the scope of this 
report--specifically, funds available under the Operating Fund, Capital 
Fund, and HOPE VI programs. To describe HUD processes to ensure that 
housing agencies use public housing funds for statutorily allowable 
uses, we reviewed pertinent federal laws, agency notices, and program 
guides, and other job aids or documents. We interviewed program 
officials in the Office of Public and Indian Housing, including 
administrators from the Offices of the Deputy Secretary for Field 
Operations and of the Deputy Secretary for Public Housing Investments 
in Washington, D.C. We obtained information on the Public Housing 
Assessment System (PHAS) and financial management assessment procedures 
from officials responsible for this system at HUD's Real Estate 
Assessment Center (REAC). In addition, we reviewed key documents that 
describe the annual single audit process as applicable to housing 
agencies that receive federal funds, such as the Office of Management 
and Budget's (OMB) Circular A-133: Audits of States, Local Governments, 
and Non-Profit Organizations and HUD program documents. 

We also interviewed officials from four HUD field offices and obtained 
additional documentary and testimonial information to summarize the 
oversight processes. We selected field offices for review. We selected 
the HUD field office in Miami-Dade because it oversaw the Miami-Dade 
Housing Authority, which had been the most recent housing agency to go 
into receivership pursuant to a settlement agreement resolving 
allegations of financial mismanagement. We also met with officials from 
three other HUD field offices: Baltimore, San Francisco, and 
Washington, D.C. Within their portfolios, these field offices all have 
housing agencies with active Operating Fund, Capital Fund, and HOPE VI 
programs, with a range of housing agencies of different sizes, and in 
proximity to cities near GAO offices. Although the results of our 
discussion with these field offices may not be generalized across all 
field offices, our discussions provided important context on HUD's 
implementation of its oversight processes and corroboration of 
information we collected. We also obtained information on HUD's 
oversight procedures with staff from selected public housing agencies 
in each of the HUD field office locations: the Housing Authority of the 
City of Alameda, Housing Authority of the County of Monterey, Richmond 
Housing Authority, and San Francisco Housing Authority in California; 
the Miami-Dade Housing Authority and Housing Authority of the City of 
Fort Lauderdale in Florida; the District of Columbia Housing Authority; 
and the Housing Authority of Baltimore City and Prince George's County 
Housing Authority in Maryland. 

To understand commonly occurring reported findings of inappropriate use 
or mismanagement of public housing funds by housing agencies, we 
conducted a content analysis of findings in HUD's Office of Inspector 
General (OIG) audit and single audit reports of housing agencies. 
Through this analysis we developed a number of categories and 
subcategories of common findings reported in these audits, including 
instances of noncompliance and internal control deficiencies. We took 
steps to ensure that the categories and subcategories we developed were 
consistently applied across both OIG and single audit reports, which 
included independent verification that the established categories and 
subcategories in the OIG reports were applicable to the findings we 
analyzed in the single audit reports. To select OIG audits for our 
analysis, we obtained a list of all audit reports with findings related 
to the three public housing funds (Operating Fund, Capital Fund, and 
HOPE VI) from 2002 through 2007. This list contained 144 audit reports. 
We also determine whether these audits met the following additional 
criteria for inclusion in our content analysis sample: (1) The audit 
findings were related to inappropriate use of funds and mismanagement 
issues, and (2) the audits were initiated by OIG or entities other than 
HUD program officials. We identified 81 OIG audits that met these 
criteria and constituted our final sample. 

Single audit reports for our analysis were selected from audits 
conducted from audit years 2002 through 2005. This period differs from 
one for our analysis of OIG audit report because single audit reports 
are not due to HUD or to the Federal Audit Clearinghouse--the source 
from which we drew our sample--until 9 months after a housing agency's 
fiscal year end. As a result, some housing agencies had not yet 
submitted their 2006 or 2007 single audit reports by the time we 
performed our analysis. Using HUD financial data on housing agencies, 
we created a list of 129 single audit reports with findings related to 
the three public housing funds from audit years 2002 through 2005. We 
ensured that these single audit and OIG reports related to financial 
management issues within the scope of our review. Our final sample of 
56 reports included 8 reports in 2002, 10 in 2003, 18 in 2004, and 20 
in 2005. 

To identify potential cases of housing agencies at greater risk of 
inappropriately using or mismanaging funds across the HUD housing 
agency portfolio, we reviewed financial information from REAC's 
financial data schedule (FDS) database for approximately 3,300 housing 
agencies. We reviewed HUD's Financial Data Schedule Line Definition and 
Crosswalk Guide on the data fields available in this system and 
analyzed certain data line items. Specifically, we identified those FDS 
line items that could be used to assess potential areas of 
inappropriate use and financial mismanagement. In particular, we looked 
at FDS information on advances of public housing funds as a potential 
indicator of improper use and on cash management (bank overdrafts) as a 
potential indicator of financial mismanagement. At the time that we 
obtained these data from HUD, fiscal year 2006 was the last year for 
which a full year of financial data schedules was available. 

We assessed the reliability of the data by (1) reviewing existing 
information about the systems and the data, (2) interviewing agency 
officials knowledgeable about the data, and (3) examining data elements 
used in our work by conducting electronic edit checks and comparing 
actual with anticipated values. For the FDS data, we analyzed the most 
current available data from the system for the years within the scope 
of our review. We obtained explanations on inconsistencies we found in 
the data from agency officials. We determined that the data were 
sufficiently reliable for the purposes of this report. 

Analysis of potential inappropriate use of funds: As a potential 
indicator of inappropriate use, such as improper advances of funds, we 
analyzed balances of funds due from other program (FDS line item 144) 
for all housing agencies' operating funds from fiscal years 2002 
through 2006. We selected this line item because HUD's OIG has 
identified housing agencies that have inappropriately advanced public 
housing operating funds by analyzing FDS for housing agencies that 
reported balances in excess of $100,000 on line item 144 for the 
operating fund. OIG found that housing agencies often used the public 
housing general fund bank account as the payment account for various 
other activities of the housing agency. When these other activities did 
not repay the operating fund account, a balance was reported on line 
144 of the FDS. When housing agencies did this for activities requiring 
substantial amounts of cash, the balance in line 144 tended to grow, 
indicating an inappropriate use of funds. Similarly, we identified 
housing agencies showing amounts due from other program balances in 
excess of $100,000 for its operating fund as an indicator of potential 
inappropriate advances of funds. 

Analysis of potential mismanagement of funds: To identify housing 
agencies that may have fund mismanagement problems, such as poor cash 
management, we analyzed amounts reported as bank overdrafts in FDS 
(line item 311). This line item on FDS represents checks written in 
excess of funds available in bank accounts. In identifying this line 
item as an indicator of potential fund mismanagement, we interviewed 
HUD officials to determine if there were sound or legitimate 
operational reasons for a housing agency writing checks in excess of 
funds available in a housing agency's bank account. HUD officials could 
not provide such reasons. Further, OIG agreed that using bank 
overdrafts as an indicator of potential funds mismanagement was 
reasonable. 

We conducted this performance audit from January 2007 through March 
2009 in Alameda, Monterey, Richmond, and San Francisco, California; 
Miami and Fort Lauderdale, Florida; Baltimore and Prince George's 
County, Maryland; and Washington, D.C. in accordance with generally 
accepted government auditing standards. Those standards require that we 
plan and perform the audit to obtain sufficient, appropriate evidence 
to provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on the audit 
objectives. 

[End of section] 

Appendix II: Comments from the U.S. Department of Housing and Urban 
Development: 

U.S. Department Of Housing And Urban Development: 
Office of Public and Indian Housing: 
Washington, DC 20410-5000: 
[hyperlink, http://www.hud.gov] 
[hyperlink, http://espanol.hud.gov] 

May 27, 2009: 

Mr. Mathew J. Scirè: 
Director: 
Financial Markets and Community Investment: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Scirè: 

The Office of Public and Indian Housing has reviewed the draft report 
on HUD's Oversight of Housing Agencies Should Focus More on 
Inappropriate Use of Program Funds (GAO-09-33). Enclosed are my written 
comments concerning your report. As noted in the enclosed comments, I 
will be discussing your recommendations with the new Assistant 
Secretary for Public and Indian Housing when she arrives.
Please contact Michael Mangahas at (202) 402-6726, if you have any 
questions. 

Sincerely, 

Signed by: 

Paula O. Blunt: 
General Deputy Assistant Secretary for Public and Indian Housing: 

Enclosure: 

[End of letter] 

Public and Indian Housing Comments on HUD's Oversight of Housing 
Agencies Should Focus More on Inappropriate Use of Program Funds (GAO-
09-33): 

Overall PIH Response to GAO Draft Review Report: 

Your Report contains useful information and provided PIH with 
recommendations on how to strengthen oversight of housing agencies 
(PHAs) administering the public housing program and to better leverage 
information that it already collects. However, PIH does not
believe that the recommendations provided will accomplish these 
objectives. 

It is anticipated that the new Assistant Secretary for PIH will be 
arriving soon. PIH would like the opportunity to brief the new 
Assistant Secretary on the GAO report and allow her the opportunity to 
decide how she wants to approach the issues that have been raised. 

Recommendations for Executive Action: 

1. Regularly summarize and systematically evaluate the results of OIG 
and single audits of public housing agencies to allow program managers 
to identify and understand problems of potential inappropriate use and 
mismanagement of public housing funds, identify emerging issues, and 
evaluate overall monitoring and oversight processes. Summarized results 
of audits should be disseminated to field offices, housing agencies, 
and their auditors to help make them aware of emerging or persistent 
problems and assist them in monitoring and administering HUD's public 
housing programs. 

2. Develop mechanism-such as financial indicators-to identify housing 
agencies that are at greater risk of inappropriately using or 
mismanaging public housing funds. Such mechanisms may be developed 
based on the department's evaluation of commonly occurring and emerging 
issues identified in OIG and single audits of housing agencies and 
developed by leveraging financial information that the department 
currently collects. Once such indicators are developed, the department 
should use them as part of its ongoing monitoring and review of housing 
agencies' use of public housing funds. 

PIH response: 

PIH believes that more analysis of the existing oversight mechanisms 
and information collected from PHAs should be done in order to evaluate 
and develop possible alternatives. We need additional time to involve 
other PIH parties in developing a more creative and comprehensive 
approach in resolving these issues. 

As previously noted, the draft report will be discussed with the new 
Assisted Secretary once she reports to HUD. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Mathew J. Scirè, (202) 512-8678 or sciremj@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Daniel Garcia-Diaz (Assistant 
Director), Emily Chalmers, May Lee, John Lord, Marc Molino, Jasminee 
Persaud, Carl Ramirez, Linda Rego, Suneeti Shah, and Julie Trinder made 
key contributions to this report. 

[End of section] 

Footnotes: 

[1] The Single Audit Act of 1984, as amended, Pub. L. No. 98-502, 98 
Stat. 2327, codified at 31 U.S.C. § 7501-7507, requires state and local 
governments and nonprofit organizations that expend $500,000 or more in 
federal awards in a fiscal year to have either a single audit or a 
program-specific audit. 

[2] PCIE had been established under an Executive Order, but the PCIE is 
being terminated and replaced with the Council of the Inspectors 
General on Integrity and Efficiency, as provided by the Inspector 
General Reform Act of 2008. Pub. L. No. 110-409, 122 Stat. 4302. 
Currently, PCIE is known as the Council of the Inspectors General on 
Integrity and Efficiency (CIGIE). 

[3] Ch. 896, 50 Stat. 888. 

[4] 42 U.S.C. § 1437g(e)(1). 

[5] 42 U.S.C. § 1437g(d)(1). 

[6] 42 U.S.C. § 1437v. 

[7] 31 U.S.C. § 7502(a). See Office of Management and Budget (OMB) 
Circular A-133. The single audit threshold was raised from $300,000 to 
$500,000 for fiscal years ending after December 31, 2003. 68 Fed. Reg. 
38401 (June 27, 2003). Election of program-specific audits can occur 
when an auditee expends federal awards under only one federal program 
(other than for research and development) and when federal laws, 
regulations, or grant agreements do not require a financial statement 
audit of the auditee. Under these circumstances, the auditee may elect 
to have a program-specific audit, which is limited to the auditee's 
finances, controls, and compliance under the program. 

[8] OMB prescribes guidance for determining which programs are major 
for the audited entity and includes criteria such as the amount of 
federal awards expended by the entity and other risk factors. OMB also 
publishes a document called the Compliance Supplement that summarizes 
the laws, regulations, and other program requirements that generally 
apply to all federal programs and some that apply specifically to 
public housing and other federal programs. We did not review the 
adequacy or completeness of the compliance requirements for public 
housing programs identified by OMB in the Compliance Supplement. 

[9] The Federal Audit Clearinghouse single audit database was 
established as a result of the Single Audit Act Amendments of 1996 
(Pub. L. No. 104-156, 110 Stat. 1396) and contains summary information 
on the auditor, the recipient and its federal programs, and the results 
of audits. 

[10] There are special circumstances for which housing agencies may opt 
out of some PHAS reporting requirements. Standard/high-performing 
housing agencies that have fewer than 250 units may skip some 
components of PHAS, except the financial evaluation, every other year. 
Housing agencies affected by a disaster can obtain a waiver from HUD to 
exempt them from PHAS reporting. Also, some of the housing agencies 
designated by HUD as part of the Moving to Work program, a 
demonstration program authorized by Congress that provides certain 
housing agencies greater flexibility in financial and program 
management, may be exempted, depending on their particular arrangements 
with HUD. 

[11] For the purposes of this report, GAO considered a PHAS score to be 
passing for any housing agency with an overall PHAS composite score 
that was not less than 60 percent and/or with a FASS score that was not 
less than 60 percent. 

[12] When troubled housing agencies with 1,250 or more units cannot 
improve their overall PHAS scores to 60 or their subcomponent scores to 
18 within 2 years, the Quality Housing and Work Responsibility Act of 
1998 (Pub. L. No. 105-276, title V, 112 Stat. 2518) directs HUD to take 
action against them, including appointing a receiver. 42 U.S.C. § 
1437d(j)(3)(B)(III). 

[13] See PCIE, Report on National Single Audit Sampling Project, June 
2007. 

[14] GAO, Single Audit Quality: Actions Needed to Address Persistent 
Audit Quality Problems, [hyperlink, 
http://www.gao.gov/products/GAO-08-213T] (Washington, D.C.: Oct. 25, 
2007). 

[15] GAO, Single Audit: Actions Needed to Ensure That Findings Are 
Corrected, [hyperlink, http://www.gao.gov/products/GAO-02-705] 
(Washington, D.C.: June 26, 2002). 

[16] The guide provides information for government agencies, identifies 
areas for potential improvement in grant oversight, and highlights 
specific examples of promising practices that federal agencies have 
implemented, although it does not evaluate the effectiveness of the 
practices. For example, the guide discusses using internal and external 
audits to identify at-risk grantees and summarizing audit results to 
support future management decisions. Formed by GAO in 2001, the 
Domestic Working Group is an intergovernmental group made up of 19 
federal, state, and local audit organizations that was tasked by the 
Comptroller General of the United States with suggesting ways of 
improving grant accountability. 

[17] Housing choice vouchers are administered locally by public housing 
agencies. Housing agencies receive funds from HUD to administer the 
voucher program. A family that is issued a housing voucher is 
responsible for finding a suitable housing unit of the family's choice 
where the owner agrees to rent under the program. See 42 U.S.C. § 
1437f(o). 

[18] The Moving to Work program offers housing authorities the 
opportunity to design and test innovative, locally designed housing and 
self-sufficiency strategies for low-income families by allowing 
exemptions from existing public housing and tenant-based Housing Choice 
Voucher rules and permitting housing agencies to combine operating, 
capital, and tenant-based assistance funds into a single agencywide 
funding source, as approved by HUD. Pub. L. No.104-134, 110 Stat. 
1321(1996). 

[End of section] 

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