Internal Audit Reports

Audit Reports issued between FY 1995 and FY 2006 are available by request. Please contact your local field office for more information.

Fiscal Year 2013

Issue Date: January 24, 2013
Audit Report No: 2013-PH-0003

Title: HUD Did Not Always Adequately Monitor Enforcement Grants Awarded Through Its Fair Housing Initiatives Program

We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of Private Enforcement Initiative grants awarded under its Fair Housing Initiatives program as part of our annual audit plan. Our objective was to determine whether HUD performed monitoring to ensure that enforcement grant funds were spent in compliance with grant terms and program requirements.

HUD monitoring generally covered procedures required to ensure that grantees complied with grant terms and program requirements. However, HUD did not perform onsite monitoring as required for approximately $10.2 million of about $40.9 million in enforcement grants awarded during the audit period and did not always report monitoring results in a timely manner. These deficiencies occurred because program technical monitors and representatives did not perform their monitoring responsibilities in accordance with HUD policy. Also HUD did not have a system or process in place to ensure that monitoring and related reporting were consistently completed as required. As a result, there was no assurance that program requirements were fully met for grants that were not properly monitored.

We recommended that the Deputy Assistant Secretary for Enforcement and Programs (1) issue a directive emphasizing the importance of onsite monitoring to applicable staff, and (2) develop and implement a tracking process to ensure that grantee monitoring and related reporting are completed in accordance with HUD policies.

Issue Date: January 4, 2013
Audit Report Number: 2013-CH-0001

Title: HUD Did Not Always Provide Adequate Oversight of Its Assisted Living Conversion Program

We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of the Assisted Living Conversion Program. We initiated the audit as part of the activities in our fiscal year 2012 annual audit plan, which included contributing to the improvement of HUD’s execution of and accountability for fiscal responsibilities. Our audit objective was to determine whether HUD had adequate oversight of its Assisted Living Conversion Program.

HUD did not always ensure that grant applications contained eligible work items or construction activities. Specifically, 9 of the 19 grant applications reviewed contained items or construction activities that were not directly related to the conversion of units and common space for assisted living. Further, HUD did not ensure that the performance period for six grants did not exceed 18 months. These weaknesses occurred because HUD lacked procedures and controls for identifying ineligible activities and ensuring that grants were executed within 18 months according to HUD requirements. Additionally, the field offices lacked sufficient understanding of the program’s requirements. As a result, HUD lacked assurance that grant funds were solely used for eligible activities as prescribed by the program requirements and guidance. Further, HUD lacked assurance that projects will be completed in a timely manner and without unnecessary waste to meet the special needs of the elderly and disabled persons.

HUD did not always ensure that grantees submitted required biannual progress reports before it released payments. Further, it did not ensure that it conducted bimonthly onsite inspections of the construction activities as required. These conditions occurred because the field offices disregarded or lacked knowledge of the program requirements for progress reporting and inspections. Consequently, HUD lacked assurance that funds were properly used to meet the program objectives, and did not effectively protect its interest.

We recommend that the Director of HUD’s Office of Housing Assistance and Grant Administration (1) identify the ineligible items and seek reimbursement from grantees from nonfederal funds for completed projects or adjust grant amounts accordingly for active projects, and consult with HUD’s Office of General Counsel on the eligibility of items or activities, where necessary; and (2) implement adequate policies, procedures, and controls to address the deficiencies cited in this audit report.

Issue Date: December 20, 2012
Audit Report Number: 2013-PH-0002

Title: HUD Policies Did Not Always Ensure That Borrowers Complied With Program Residency Requirements

We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of its Home Equity Conversion Mortgage Program based on our annual audit plan and our strategic goal to improve the integrity of HUD’s single-family insurance programs. This is the second of two reports that we issued on HUD’s oversight of the Program. Our objective was to determine whether HUD controls prevented borrowers from renting their properties to Section 8 Housing Choice Voucher program participants.

HUD policies did not always ensure that borrowers complied with Program residency requirements. The audit showed that 37 out of 174 borrowers reviewed were not living in the property associated with the loan and were renting the property to Section 8 voucher participants contrary to residency requirements. This condition occurred because HUD’s Office of Single Family Housing did not have control policies or procedures in place to prevent or mitigate the problem. As a result, 37 insured loans were ineligible and should be declared in default and due and payable to reduce the potential risk of loss of about $525,000 to HUD’s insurance fund.

We recommend that the Deputy Assistant Secretary for Single Family Housing (1) direct the applicable lenders to verify and provide documentation of the borrowers’ compliance with the Program residency requirement or for each noncompliant borrower, declare the loan due and payable, thereby putting about $525,000 to better use, and (2) implement control policies or procedures to at least annually coordinate with HUD’s Office of Public and Indian Housing to match borrowers’ information with Section 8 voucher participant data to prevent or mitigate instances of borrowers renting out their properties to Section 8 voucher participants.

Issue Date: December 19, 2012
Audit Report Number: 2013-DP-0003

Title: Review of the Data Conversion Activities and Interface Plans and Procedures for the Implementation of HUD’s Integrated Core Financial System

We audited the U.S. Department of Housing and Urban Development’s (HUD) plans and procedures for data conversion and system interfaces for the implementation of the HUD Integrated Core Financial System (ICFS). We conducted this audit as a component of the testing of general and technical controls for information systems in connection with the annual audit of HUD’s consolidated financial statements.

HUD’s effort to modernize its financial management system is called the HUD Integrated Financial Management Improvement Project (HIFMIP). One goal of HIFMIP was to create ICFS, and replace only two of the five financial management systems that HUD uses to accomplish the core financial system functions. The OCFO did not properly plan and manage the implementation of ICFS. Since 2003, HUD has spent more than $35 million on HIFMIP and does not have an operational new core financial system. The initial vision document was initiated in 2003 and issued in 2004. The contract was awarded in September 2010. Before executing the contract, OCFO did not update Project information, follow up with system owners to ensure that required actions were completed, plan for the conversion of public and Indian housing data within the HUD Central Accounting and Program System, set up a Project performance measurement baseline for each data conversion cycle, and ensure that the scope of the conversion in the conversion plan would meet HUD’s needs and comply with the contract. Also, OCFO did not ensure that key staff and program office stakeholders were involved in pertinent decisions, establish an effective deliverable approval process, ensure that converted data were verified by an independent verification and validation contractor, and verify that the contractor complied with the scope of the conversion. Base period performance goals and objectives were not met and additional time and funding will be needed to complete the project.

We recommend that the Deputy Secretary reevaluate the interface approach documents and the data conversion plan to ensure that tasks for each section have been adequately completed by HUD’s Integrated Financial Management Improvement Project contractor and verified by OCFO. Specifically, the Office of the Chief Financial Officer (OCFO) should complete end-to-end testing of the interface processes, secure an independent verification and validation contractor for data conversion validation, coordinate with program offices to ensure that interface systems are compatible, and ensure that the current financial applications are available until a compatible application is complete.

Issue Date: December 11, 2012
Audit Report Number: 2013-PH-0001

Title: HUD’s Region 3 Multifamily Housing Offices Generally Ensured That Section 236 Rent and Excess Income Requirements Were Met

We audited HUD's Region 3 Offices of Multifamily Housing to determine whether HUD ensured that rents and excess income for Section 236 properties were properly identified and remitted to HUD. We performed this audit based on our audit plan and problems identified during an external audit of a Section 236 property located in Washington, DC.

HUD's Region 3 Offices of Multifamily Housing generally ensured that Section 236 properties established basic and market rents and remitted excess income to HUD as required. However, the Washington, DC, program center did not ensure 6 of its 16 Section 236 properties' rents and excess income were properly identified. This condition occurred because the program center did not always review Section 236 rents and excess income when conducting management reviews. Without adequate oversight, there is no assurance that tenants are paying appropriate rents and excess income amounts reported are accurate.

We recommend that HUD direct the Washington, DC, program center to (1) require two Section 236 properties to establish appropriate rents, review excess income calculations totaling $19,121 to determine whether the income is adequately supported, and resubmit excess income from non-Federal funds as required; (2) require two Section 236 properties to repay from non-Federal funds excess income totaling $55,091 that was retained without HUD's approval; (3) require two Section 236 properties to submit monthly excess income reports as required; and (4) follow its own procedures to ensure adequate oversight of Section 236 rents and excess income.

Issue Date: December 4, 2012
Audit Report Number: 2013-DP-0002

Title: Audit of Incorrect Payments to the Project Contractor for Data Conversion Tasks Related to the Implementation of HUD’s Integrated Core Financial System

We audited the U.S. Department of Housing and Urban Development’s (HUD)’s plans and procedures for data conversion of the HUD Integrated Core Financial System (ICFS). Our audit objective was to review HUD’s readiness to fully implement ICFS and determine whether HUD had properly managed the payments related to data conversion activities.

We determined that OCFO incorrectly paid the Integrated Financial Management Improvement Project contractor for tasks that were not completed. Specifically, OCFO incorrectly paid more than $1.3 million to the Project contractor for one contract task, although it did not receive the contract deliverables associated with those tasks. Also, OCFO paid the entire amount of another contract task before ensuring that the task had been completed.

We recommend that the Office of the Chief Procurement Officer (OCPO) obtain reimbursement for payment from the Project contractor for the incomplete contract tasks. Also, it should ensure that future fixed-price contracts require that a contract deliverable be associated with each payment on the partial payment schedule. Lastly, it should ensure that future fixed-price contracts with partial payment schedules include a requirement to withhold a percentage of the contracted amount for each task until the task is completed.

Issue Date: November 15, 2012
Audit Report Number: 2013-FO-0003

Title: Additional Details To Supplement Our Report on HUD’s Fiscal Years 2012 and 2011 Financial Statements

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 2012 and 2011 Financial Statements, which is included in HUD's Fiscal Year 2012 Agency Financial Report.

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

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

Issue Date: November 9, 2012
Audit Report Number: 2013-FO-0002

Title: Audit of the Federal Housing Administration’s Financial Statements for Fiscal Years 2012 and 2011

In accordance with the Government Corporation Control Act as amended (31 U.S.C. 9105), the Office of Inspector General engaged the independent certified public accounting firms of CliftonLarsonAllen LLP (CLA) to audit the fiscal year 2012 and Clifton Gunderson LLP[1] to audit the fiscal year 2011 financial statements of the Federal Housing Administration (FHA). The contracts required that the audit be performed according to Generally Accepted Government Auditing Standards (GAGAS).

In connection with the contract, we reviewed CLA’s report and related documentation and inquired of its representatives. Our review, as differentiated from an audit in accordance with U.S. GAGAS, was not intended to enable us to express, and we do not express, opinions on FHA’s financial statements or internal controls or conclusions on compliance with laws and regulations. CLA is responsible for the attached Independent Auditor’s Report dated November 9, 2012 and the conclusions expressed in the report. Our review disclosed no instances where CLA did not comply, in all material respects, with U.S. GAGAS.

This report includes both the Independent Auditors’ Report and FHA’s principal financial statements. Under Federal Accounting Standards Advisory Board (FASAB) standards, a general-purpose federal financial report should include as required supplementary information (RSI) a section devoted to Management’s Discussion and Analysis (MD&A) of the financial statements and related information. The MD&A is not included with this report. FHA plans to separately publish an annual report for fiscal year 2012 that conforms to FASAB standards.

The report contains one significant deficiency in FHA’s internal control and one reportable instance of non-compliance with laws and regulations. The report contains four new recommendations. Within 120 days of the report issue date, FHA is required to provide its final management decision which includes the corrective action plan for each recommendation. As part of the audit resolution process, we will record four new recommendation(s) in the Department’s Audit Resolution and Corrective Action Tracking system (ARCATS). We will also endeavor to work with FHA to reach a mutually acceptable management decision prior to the mandated deadline. The proposed management decision and corrective action plans will be reviewed and evaluated for OIG

[1] In early 2012, Clifton Gunderson LLP merged with another firm and became CliftonLarsonAllen LLP.

Issue Date: November 7, 2012
Audit Report Number: 2013-FO-0001

Title: Audit of the Government National Mortgage Association’s (Ginnie Mae) Financial Statements for Fiscal Years 2012 and 2011

In accordance with the Government Corporation Control Act as amended (31 U.S.C. 9105), the Office of Inspector General engaged the independent certified public accounting firm of CliftonLarsonAllen LLP (CLA) to audit the fiscal years 2012 and 2011 financial statements of the Government National Mortgage Association (Ginnie Mae). The contract required that the audit be performed according to Generally Accepted Government Auditing Standards (U.S. GAGAS). Ginnie Mae’s fiscal year 2011 financial statements were audited by Clifton Gunderson[1]; whose report dated November 7, 2011 expressed an unqualified opinion on those financial statements.

In connection with the contract, we reviewed CLA’s report and related documentation and inquired of its representatives. Our review, as differentiated from an audit in accordance with U.S. GAGAS, was neither intended to enable us to express an opinion nor do we express an opinion on GNMA’s financial statements, internal controls or conclusions on compliance with laws and regulations. CLA is responsible for the attached auditor’s report dated November 7, 2012 and the conclusions expressed in the report. Our review disclosed no instances where CLA did not comply, in all material respects, with U.S. GAGAS.

This report includes both the Independent Auditors’ Report and Ginnie Mae’s principal financial statements. Under Federal Accounting Standards Advisory Board (FASAB) standards, a general-purpose federal financial report should include as required supplementary information (RSI) a section devoted to Management’s Discussion and Analysis (MD&A) of the financial statements and related information. The MD&A is not included with this report. Ginnie Mae plans to separately publish a Report to Congress for fiscal year 2012 that conforms to FASAB standards.

[1] In early 2012, Clifton Gunderson LLP merged with another firm and became CliftonLarsonAllen LLP.

Issue Date: October 18, 2012
Audit Report Number: 2013-NY-0001

Title: HUD Effectively Administered the Homelessness Prevention and Rapid Re-Housing Program, but Measuring the Program’s Outcome Presented Challenges

We reviewed HUD’s monitoring of the Homelessness Prevention and Rapid Re-Housing Program (HPRP) in support of HUD OIG’s audit plan goals to oversee Recovery Act-funded activity and improve HUD’s execution of and accountability for fiscal responsibilities. The objective of the audit was to determine whether HUD had established adequate controls to (1) ensure that grantees complied with Recovery Act expenditure and performance reporting requirements and (2) evaluate the HPRP’s effectiveness so that positive policies can be applied to future HUD-funded homelessness prevention and assistance programs.

HUD took actions to mitigate program risks and generally ensure that HPRP grantees complied with Recovery Act requirements and HPRP regulations. However, HUD’s ability to measure the effectiveness of the HPRP was hampered by data limitations. These limitations are attributed to the limited timeframe for the HPRP and variations in reporting by HPRP grantees. As a result, HUD does not have reliable data for outcome-based measurements of the HPRP. Recognizing these limitations, HUD contracted for a multi-phased study of the HPRP and in the interim, incorporated perceived HPRP successful attributes into the Emergency Solutions Grants program. Nevertheless, additional actions could be taken to develop information to assist in evaluating the effectiveness of the HPRP.

We recommend that HUD’s Acting Deputy Assistant Director for Special Needs encourage HPRP grantees to identify successful performance evaluation attempts and profiles of HPRP promising practices for analysis and consideration for future study and report on their use of data available in HMIS to identify Emergency Solutions Grant assisted participants who were HPRP participants to assist in the evaluation of the effectiveness of the HPRP assistance.

Issue Date: October 3, 2012
Audit Memorandum Number: 2013-LA-0801

Title: HUD Paid for Unnecessary REO M&M III Field Service Manager Administrative Costs

In conjunction with our external audit of Innotion Enterprises, Inc. (Audit Report #2012-LA-1010), we reviewed termite inspection passthrough costs that it submitted to the U.S. Department of Housing and Urban Development (HUD) for payment as part of its real estate-owned (REO) Management and Marketing III (M&M III) program field service manager contract. We selected Innotion’s Las Vegas, NV, branch based on the size and scope of its contract with HUD. One of our objectives was to determine whether Innotion’s Las Vegas, NV, branch met administrative requirements concerning passthrough cost reasonableness.

We found that HUD paid for unnecessary administrative costs of Innotion’s subcontractor under HUD’s field service manager contract. This occurred due to the unclear definitions of actual and administrative costs in HUD’s contract with Innotion. Although the contract stated that Innotion could pay only the amount billed and not add its own administrative costs, it did not specifically disallow the payment of administrative costs incurred by a subcontractor, such as One Stop, that subcontracted Innotion’s work to other termite inspection contractors. As a result, 30 percent ($4,914) of the termite inspection costs paid by HUD in our sample were for the administrative costs of Innotion’s subcontractor. If HUD does not revise its field service manager contracts, it may continue to pay for unnecessary administrative costs for termite inspections and other passthrough costs submitted by its field service manager contractors.

We recommend that HUD’s Deputy Assistant Secretary for Single Family Housing ensure that HUD is paying fair and reasonable prices for passthrough expenses by ascertaining that field service managers are awarding subcontracts based on obtaining bids from qualified vendors that include, but are not limited to, the entities that actually perform the work. If this change had been implemented before our review, HUD could have put at least $4,914 to better use.

Issue Date: September 28, 2012
Audit Memorandum Number: 2012-CH-0801

Title: HUD’s Office of Community Planning and Development Needs To Improve Its Tracking of HOME Investment Partnerships Program Technical Assistance Activities

We reviewed the U.S. Department of Housing and Urban Development’s (HUD) technical assistance for the HOME Investment Partnerships Program. The review was part of the activities in our fiscal year 2012 annual audit plan. We initiated the review based upon a congressional request. Our objective was to determine whether HUD’s Office of Community Planning and Development sufficiently tracked Program technical assistance activities, including technical assistance activities for community housing development organizations.

HUD’s Office did not have a centralized system or database that allowed it to sufficiently track all Program technical assistance activities and efficiently and effectively provide information on completed activities. Therefore, we requested information and documentation from HUD’s Office regarding the specific details for all national and local activities that were completed from October 1, 2009, through August 31, 2011. To expedite the collection and delivery of the requested information and documentation, HUD’s Office decided to request the information and documentation for all activities from the technical assistance providers. However, we determined that we could not rely on the accuracy and completeness of the information and documentation provided by the providers.

We recommend that HUD’s Acting Assistant Secretary for the Office of Community Planning and Development implement adequate procedures and controls to ensure that HUD's Office (1) uses the tracking mechanisms within HUD’s systems to sufficiently track all technical assistance activities regarding the Program once HUD’s OneCPD Integrated Practitioner Assistance System is fully implemented, and (2) sufficiently tracks all technical assistance activities regarding the Program until it fully implements HUD’s OneCPD Integrated Practitioner Assistance System.

Issue Date: September 28, 2012
Audit Memorandum Number: 2012-CH-1803

Title: A Summary of the Foreclosure and Claims Process Reviews for Five Mortgage Servicers That Engaged in Improper Foreclosure Practices

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) completed its nationwide effort to review the foreclosure practices of the five largest Federal Housing Administration (FHA) mortgage servicers (Ally Financial, Incorporated, Bank of America, CitiMortgage, JPMorgan Chase, and Wells Fargo Bank). We performed these reviews due to reported allegations made in the fall of 2010 that national mortgage servicing lenders were engaged in widespread questionable foreclosure practices involving the use of foreclosure “mills” and a practice known as “robosigning”. On March 12, 2012, we issued separate memorandums to HUD, which detailed our results for each of the five reviews (2012-PH-1801, 2012-FW-1802, 2012-KC-1801, 2012-CH-1801, and 2012-AT-1801).

In February 2012, DOJ and the State attorneys general announced their proposed joint settlement agreement totaling $25 billion with the five mortgage servicers for their reported violations of State and Federal foreclosure requirements. On March 12, 2012, DOJ and the State attorneys general filed consent judgments with the court. The consent judgments provided details of the servicers’ financial obligations under the agreement, such as payments to borrowers whose properties were foreclosed upon and the Federal and State governments. They also included more than $20 billion in consumer relief activities. The Federal settlement payment amount of more than $684 million would be used for (1) losses incurred to FHA’s capital reserve account and the Veterans Housing Benefit Program Fund or as otherwise directed by the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture’s Rural Housing Service, and (2) the resolution of qui tam actions. Of the $684 million, as of July 15, 2012, more than $315.2 million had been deposited into FHA’s account.

We recommend that HUD (1) consult with its Office of General Counsel to determine the changes needed to FHA’s servicing and foreclosure policies based on the consent judgments. Once determined, ensure that the servicers incorporate the necessary changes into their procedures for servicing FHA-insured loans; (2) ensure that the servicers establish or implement adequate procedures and controls to address the control deficiencies cited in the five issued memorandums, including but not limited to, the withholding of claims for insurance benefits, and the retention of appropriate legal documentation supporting the appropriateness of the foreclosure for all FHA-insured properties for the life of the loans; and (3) pursue appropriate administrative sanctions against attorneys who may have violated professional obligations related to the foreclosure of FHA-insured properties.

Issue Date: September 28, 2012
Audit Report Number: 2012-KC-0005

Title: U.S. Department of Housing and Urban Development, Real Estate Assessment Center Did Not Always Ensure That Independent Public Accountants Followed Statement on Auditing Standards 99 Requirements

The U. S. Department of Housing and Urban Development (HUD), Office of Inspector General audited HUD’s Real Estate Assessment Center (REAC) to determine whether it ensured that independent auditors followed Statement on Auditing Standards (SAS) 99 audit requirements.

REAC did not always ensure that independent auditors followed SAS 99 requirements. It did not identify deficiencies in 10 of the 11 deficient engagements we reviewed. For the one other engagement, REAC identified a SAS 99 deficiency but did not include it in its report. This condition occurred because REAC did not have standard procedures for addressing each SAS 99 requirement on its review checklist.

We recommend that the Deputy Assistant Secretary for Public and Indian Housing create and implement standard procedures that address each SAS 99 requirement and conclusions made on its review checklist.

Issue Date: September 28, 2012
Audit Memorandum Number: 2012-LA-0005

Title: HUD’s Office of Native American Programs Did Not Provide Adequate Oversight To Ensure Grantee Compliance With Annual Audit Report Submission Requirements

We completed a review of the U.S. Department of Housing and Urban Development’s (HUD) Office of Native American Programs’ (ONAP) annual audit reporting process primarily in response to complaints that ONAP did not take appropriate enforcement action for two grantees that failed to submit required annual audits. Our objective was to determine whether ONAP provided adequate oversight of its grantees nationwide to ensure grantee compliance with the annual audit report submission requirements.

We found that ONAP did not implement consistent procedures to ensure compliance with the annual audit report submission requirements. Specifically, it did not: (1) implement controls to consistently monitor grantees’ audit reporting compliance; (2) obtain required audit reports from tribally designated housing entities when an associated tribe submitted an audit, and (3) consistently enforce the statutory audit submission deadline.

We recommend that the Deputy Assistant Secretary, Office of Native American Programs: (1) pursue enforcement or corrective action for delinquent audit reports, (2) update the Performance Tracking Database (PTD) system to ensure audit reporting compliance for all grantees, (3) review reports not reported in the PTD system, (4) implement controls to ensure adequate oversight of grantee audit reporting, (5) discontinue the practice of accepting tribe audits in lieu of required tribally designated housing entity audits, and (6) begin enforcing the required audit submission deadline

Issue Date: September 27, 2012
Audit Report No. 2012-FO-0006

Title: HUD’s Oversight of Recovery Act-Funded Housing Programs

We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of the four selected housing programs funded by the American Recovery and Reinvestment Act of 2009. These HUD programs received $4.86 billion of the $13.61 billion in Recovery Act funding that HUD received. Our audit objectives were to determine whether HUD (1) monitored the recipients to ensure that Recovery Act funds would be fully expended by the expenditure due dates and (2) ensured that expired unliquidated funds would be recaptured and returned to the U.S. Department of the Treasury in accordance with the Pay-It-Back Act. The Office of Inspector General (OIG) initiated the audit as part of its fiscal year 2012 audit plan, which is in line with OIG’s priority to review Recovery Act funding.

HUD adequately monitored Recovery Act recipients to ensure that (1) Recovery Act funds would be fully expended by the expenditure due dates and (2) unliquidated but expired Recovery Act funds would be identified and recaptured as appropriate. However, HUD was not effective in ensuring that $9.52 million in expired and unused Recovery Act funds would be returned promptly to the Treasury in accordance with the intent of the Pay-It-Back Act.

We recommend that the Office of the Chief Financial Officer, in coordination with the program offices, establish policies and procedures governing the return of recaptured Recovery Act funds and immediately transfer $9.52 million in expired and unused Recovery Act funds to the Treasury’s general fund.

Issue Date: September 21, 2012
Audit Report Number: 2012-LA-0004

Title: HUD Did Not Ensure Public Housing Agencies’ Use of Property Insurance Recoveries Met Program Requirements

The U.S. Department of Housing and Urban Development (HUD), Office of the Inspector General (OIG) audited HUD’s Public Housing Capital Fund program and American Recovery and Reinvestment Act (Recovery Act) Capital Fund program monitoring procedures because it was included in our annual audit plan and was prompted by a prior external audit (OIG audit report 2011-LA-1802, issued May 5, 2011). Our objective was to determine whether HUD’s Capital Fund program monitoring procedures and reporting system details were adequate to ensure that public housing agencies disclosed and used property insurance recoveries in accordance with program requirements.

HUD did not adequately monitor insurance recoveries to ensure that public housing agencies appropriately applied the applicable credits either as a cost reduction or cash refund as appropriate. HUD’s program guidance was outdated and the procedures for the annual in-office review of the agencies’ ongoing capital activities and for monitoring Recovery Act program grants were not sufficiently detailed to address the review of insurance recoveries. In addition, the information HUD required agencies to submit in their annual plans and in HUD’s Financial Assessment Sub-System lacked sufficient details to be effectively used in the monitoring of insurance recoveries.

We recommend HUD update its information collection requirements to ensure that public housing agencies disclose insurance recoveries, revise its policies and procedures to ensure oversight of the disclosure of insurance recoveries, and issue a notice with guidance for public housing agencies related to the procedures for the disclosure and use of insurance recoveries.

Issue Date: September 18, 2012
Audit Report Number: 2012-LA-0003

Title: HUD Did Not Always Enforce REO M&M III Program Requirements

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) audited HUD’s oversight of its real estate-owned (REO) Management and Marketing (M&M) III program in response to a HUD OIG auditability survey on REO contract administration. Our audit objective was to determine whether HUD’s policies and procedures provided for efficient and effective oversight of asset managers and field service managers under its M&M III program.

HUD did not have adequate procedures in place to ensure consistent and adequate enforcement of asset and field service manager contracts. Specifically, (1) list prices were not always reduced according to the marketing plans, (2) bids were approved that did not meet HUD’s flexible threshold, (3) bids were rejected that met the marketing plan thresholds, (4) bids that met applicable thresholds were not always counter offered or forwarded to the government technical representative for approval, and (5) properties were not assigned to field service managers based on performance even when HUD identified performance issues. In addition, HUD did not always pay field service managers in accordance with their contracts, resulting in an estimated net underpayment of $553,784 to field service managers.

We recommend that the Deputy Assistant Secretary for Single Family Housing (1) develop and implement policies and procedures for oversight of the M&M III program, to ensure that field service managers are paid only for routine inspections that are conducted, and procedures for the P260 system to ensure that bids meeting applicable thresholds based on the listed and appraised values are accepted; (2) review the P260 system and its related controls; (3) finalize and implement the field service manager scorecard; (4) reimburse or request repayment for the field service managers that were underpaid or overpaid; and (5) ensure that HUD receives repayment for routine inspections that were not conducted by field service managers.

Issue Date: September 18, 2012
Audit Report Number:2012-KC-0004

Title: FHA Paid Claims for Approximately 11,693 Preforeclosure Sales that Did Not Meet FHA Requirements

The U.S. Department of Housing and Urban Development’s (HUD), Office of Inspector General reviewed the Federal Housing Administration (FHA) Preforeclosure Sale Program. Our objective was to determine whether FHA paid claims for only preforeclosure sales that met the criteria for participation in the program.

We found that 61 of 80 statistically selected claims from September 1, 2010, through August 31, 2011 did not meet the criteria for participation in the Preforeclosure Sale Program. Of these ineligible claims, 55 were submitted by the five lenders involved in the national mortgage settlement. In exchange for roughly $25 billion, the settlement pardoned these lenders’ misconduct in loan servicing, including their processing of preforeclosure sale claims. The remaining six improper claims totaling $360,760 were submitted by lenders that were not involved in the national mortgage settlement.

By projecting our sample results, we estimate that HUD paid $1.06 billion in claims for 11,693 preforeclosure sales during our audit period that did not meet the criteria for participation in the program. While this amount of claims did not comply with HUD requirements, it does not represent a direct loss amount to the FHA insurance fund. The ultimate final cost to the FHA insurance fund would likely be less than this amount because it is reasonable to assume that at least some of these loans could have been processed differently and would have instead gone to foreclosure and become conveyance claims. However, it is also reasonable to assume that at least some of these loans would have resulted in no claim or reduced claims due to alternative loss mitigation procedures.

We recommend that HUD strengthen controls over the Preforeclosure Sale Program. We also recommend that HUD require lenders to reimburse the FHA insurance fund for improper claims.

Issue Date: September 5, 2012
Audit Report No. 2012-KC-0003

Title: HUD Did Not Effectively Oversee and Manage the Receivership of the East St. Louis Housing Authority

The U.S. Department of Housing and Urban Development’s (HUD), Office of Inspector General reviewed HUD’s receivership of the East St. Louis Housing Authority based on the length of receivership and issues identified during recent external audits. Our objective was to determine whether HUD effectively oversaw and managed the recovery and turnaround of the Authority during the three-year period ending in September 2011.

HUD did not effectively oversee and manage the recovery and turnaround of the Authority. Specifically, it did not have an adequate structure for its staff and did not develop a receivership plan specific to the Authority. This condition occurred because HUD did not have consistent leadership in its Office of Receivership Oversight (ORO). As a result, the Authority continued to be under receivership after 26 years and has continued to experience significant management and operational deficiencies.

We recommend that HUD develop and implement a receivership plan for the Authority that includes sufficient assessments, decision points, measurable goals, and accountability mechanisms. We also recommend that HUD improve its structure for managing receiverships, permanently fill the director position within ORO, and develop adequate accountability mechanisms for HUD staff whose primary responsibilities involve receiverships.

Issue Date: August 17, 2012
Audit Report No: 2012-CH-0001

Title: HUD’s Office of Single Family Housing’s Oversight of Lenders’ Underwriting of FHA-Insured Loans Was Generally Adequate

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audit HUD’s oversight of Federal Housing Administration (FHA)-insured loans. We initiated the audit as part of the activities in our 2011 annual audit plan and strategic plan. Our audit objective was to determine whether HUD had adequate oversight of lenders’ compliance with FHA’s underwriting requirements.

HUD generally had adequate oversight of lenders’ compliance in underwriting FHA-insured loans. Its Processing and Underwriting and Quality Assurance Divisions appropriately identified lenders’ underwriting deficiencies and initiated appropriate corrective actions, with the exception of two out of the 18 loans reviewed by its Quality Assurance Division. For these loans, HUD’s Quality Assurance Division did not (1) require the lender to correct an error that it identified during a review for one loan or (2) identify a material underwriting deficiency for the other. The weaknesses occurred because HUD did not adequately oversee the quality assurance loan file review process. As a result, HUD incurred losses totaling $280,107 on the disposal of the associated properties.

We recommend that the Deputy Assistant Secretary for Single Family Housing require the Office of Single Family Housing to (1) determine whether FHA loan number 095-1259735 was covered under the settlement with Flagstar Bank FSB, (2) ask the lender to provide adequate supporting documentation for FHA case number 541-8917153 to show that the two remaining borrowers were eligible, using credit-qualifying streamline refinancing, or reimburse HUD for $89,052 for the actual loss incurred on the disposal of the associated property; and (3) improve its existing policies and procedures to address the issues identified in this report.

Issue Date: August 3, 2012
Audit Report No. 2012-AT-0001

Title: The Section Eight Management Assessment Program Lacked Adequate Controls To Accomplish Its Objective

As part of the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General’s (OIG) annual plan, we audited HUD’s controls over the Section Eight Management Assessment Program (SEMAP). Our objective was to determine whether HUD had adequate controls to ensure that SEMAP effectively assessed public housing agencies’ Section 8 administration.

HUD had not developed adequate controls to ensure that SEMAP would be effective in identifying underperforming agencies. It did not establish and maintain an effective system of management controls to provide reasonable assurance that agencies administered the Section 8 program to help eligible families afford decent rental units at the correct subsidy cost. In addition, the field offices visited during the review performed SEMAP requirements inconsistently. As a result, SEMAP’s objective of identifying underperforming agencies was not always achieved. HUD recognized weaknesses in the program and planned to improve SEMAP’s controls, including implementation of the Office of Public Housing and Voucher Programs’ Next Generation Management System and the Office of Field Operations’ Portfolio Management Tool.

We recommend that HUD develop and implement improved controls over SEMAP as it currently exists. These controls should reduce HUD’s reliance on self-certified agency data and annual audit reports. We also recommend that HUD improve its controls over how field offices perform program requirements.

Issue Date: May 8, 2012
Memorandum No. 2012-NY-0801

MemorandumTitle: Corrective Action Verification -Housing Counseling Assistance Program

We completed a corrective action verification regarding the recommendations made to the U.S. Department of Housing and Urban Development’s (HUD) Office of Single Family Program Development pertaining to our review of HUD’s monitoring of the Housing Counseling Assistance Program, Audit Report 2006-NY-0001, issued June 8, 2006. The purpose of the corrective action verification was to determine whether the audit recommendations had been implemented and the deficiencies cited in the report had been corrected.

HUD officials had generally implemented management decisions to address the recommendations in the report. Specifically, five of the seven recommendations cited in the report had been corrected. Thus, two management decisions had not fully corrected the deficiencies identified in the audit report since either they were ineffective or HUD officials had made additional Program changes. Specifically, the controls HUD officials established for housing counseling agencies that were intended to ensure an accurate account of clients counseled with HUD funds and the outcomes of the counseling were not effective. Also, HUD could not accurately measure the impact of grant funds on meeting the Program objectives.

We recommended that the Acting Deputy Assistant Secretary, Single Family Housing, reopen recommendations 1A and 1C in HUD’s Audit Resolution and Corrective Action Tracking System, which were to establish controls for housing counseling agencies that will ensure an accurate account of clients counseled with HUD funds and the outcome of this counseling and to provide justifications that the funds allocated to the Program are an efficient use of resources.

Issue Date: May 3, 2012
Audit Report No. 2012-KC-0002

Title: HUD Did Not Implement Adequate Policies and Procedures for Sanitizing Media in Its Multifunction Devices

The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General audited the Office of the Chief Human Capital Officer based on concerns about security risks of hard drives in multifunction devices. Our objective was to determine whether HUD had documented and implemented procedures to effectively remove sensitive data from the hard drives of multifunction devices before disposing of them.

HUD did not monitor or test the overwrite process for multifunction devices to ensure that the process effectively sanitized data from multifunction device hard drives. It also did not have a detailed plan in place to ensure proper sanitization of the devices’ hard drives before disposal.

We recommend that the Chief Human Capital Officer develop and implement a plan to monitor and test HUD’s overwrite process for hard drives on its multifunction devices to ensure that the process is effective. We also recommend that the Chief Human Capital Officer develop and implement a plan to ensure that all sensitive data are effectively sanitized from the hard drives of its multifunction devices before the they are disposed of.

Issue Date: April 10, 2012
Audit Report No. 2012-KC-0001

Title: HUD Generally Established Controls Over the Section 242 Program but Used an Outdated Handbook, and Its Guidance Had Not Been Cleared Through HUD’s Directives System

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General reviewed HUD’s Section 242 Mortgage Insurance for Hospitals program to determine whether HUD established controls to approve and administer projects under the Section 242 program and whether HUD used an updated handbook to administer its Section 242 program and used and provided to program participants written guidance that had been approved through HUD’s Directives System. HUD generally established controls to approve and administer projects under the Section 242 program. However, the Office of Healthcare Programs used an outdated handbook to administer its Section 242 program, and the written guidance it used and provided to participants had not been cleared through HUD’s Directives System.

We recommend that the Deputy Assistant Secretary, Office of Healthcare Programs, (1) continue to place a priority on developing an updated handbook and ensure that it is implemented in a timely manner and (2) submit its written guidance for approval through HUD’s Directives System.

Issue Date: March 15, 2012
Audit Report No. 2012-FO-0005

Title: Annual Evaluation of HUD’s Compliance With the Reporting Requirements of the Improper Payments Information Act of 2002, Executive Order 13520, and Office of Management and Budget Circular A-123 Implementing Guidance

HUD OIG conducted an annual limited scope audit of the U.S. Department of Housing and Urban Development’s (HUD) compliance with the reporting requirements of the Improper Payments Information Act of 2002 (IPIA) as amended. Each agency’s inspector general is required to review and report on the agency’s annual financial report and accompanying materials. We performed our audit in conjunction with our audit of HUD’s consolidated financial statements. The objectives of our audit were to (1) determine whether HUD’s agency financial report met the reporting requirements and whether HUD had implemented its plan to address improper payments as described in the accountable official report, (2) assess HUD’s risk assessment process for identifying programs susceptible to improper payments, and (3) evaluate the sufficiency of HUD’s improper payment reduction strategies for its high-priority programs and improper payment rate for its rental housing assistance programs (RHAP).

In general, HUD’s fiscal year 2011 agency financial report and accountable official report plans to address improper payments complied with IPIA, Executive Order 13520, and the Office of Management and Budget (OMB) Circular A-123 implementing guidance. However, HUD’s outdated risk assessment process did not fully support its basis for identifying which programs should be included in its erroneous payment study since it did not include a methodology for determining dollar amounts of potential improper payments. In addition, although HUD’s improper payment reduction strategies were progressing in a positive direction, we noted specific areas for improvement that would strengthen HUD’s improper payment reduction strategies and enhance the accuracy of HUD’s estimated improper payment rate for RHAP.

Issue Date: February 9, 2012
Audit Report No. 2012-PH-0004

Title: HUD Controls Did Not Always Ensure That Home Equity Conversion Mortgage Loan Borrowers Complied With Program Residency Requirements

We audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of its Home Equity Conversion Mortgage (HECM) program based on our annual audit plan and our strategic goal to improve the integrity of HUD’s single-family programs. This is the first of two reports that we plan to issue on HUD’s oversight of the program. Our objective was to determine whether HUD’s controls effectively ensured that HECM loan borrowers complied with program residency requirements.

We found that HUD controls did not always ensure that HECM loan borrowers complied with program residency requirements. Our review disclosed that 33 borrowers had more than 1 HECM loan and that they falsely certified to principal residency for properties that they were not living in. As a result, 33 loans insured under the HECM program were ineligible for insurance and should be declared in default and due and payable to reduce the potential risk of loss of an estimated $3.9 million to HUD’s Federal Housing Administration (FHA) insurance fund.

We recommended that HUD direct the servicing lenders to identify which property is the HECM loan borrower’s principal residence for each of the 33 cases, declare the loan for the other property in default, and declare it due and payable, thereby putting an estimated $3.9 million to better use. We also recommended that HUD perform quality assurance tests at least annually to ensure that edits in its FHA Connection system are effective in preventing the approval and generation of FHA case numbers for borrowers with existing loans.

Issue Date: January 12, 2012
Audit Report No. 2012-PA-0003

Title: HUD Approved Multifamily Accelerated Processing Program Lenders as Required but Did Not Adequately Select Lenders to Monitor

We audited the U.S. Department of Housing and Urban Development’s (HUD) monitoring of its Multifamily Accelerated Processing program lenders. The audit was performed based on a hotline complaint and the Office of Inspector General’s annual audit and strategic plan to help HUD improve its fiscal responsibilities. The objective of the audit was to determine whether HUD adequately approved and selected program lenders to monitor.

HUD generally approved program lenders as required but did not adequately select lenders to monitor. The audit showed that 5 of 51 program lenders with loan originations totaling almost $88 million had not been monitored as recommended by its written policy. This occurred because HUD did not ensure all lenders were monitored and its existing policy failed to define which lenders should be classified as low-, moderate-, or high-volume lenders. We recommend that HUD complete and fully implement its new procedures for selecting lenders to monitor. We also recommend that it immediately classify its approved lenders as low-, moderate-, or high-volume lenders in accordance with its updated policy. After it appropriately classifies its lenders, we recommend that HUD prepare and implement a monitoring schedule based on the number and type of monitoring reviews it will perform for each lender.

Issue Date: December 15, 2011
Audit Report No. 2012-PA-0002

Title: HUD's Philadelphia, PA, Homeownership Center Generally Monitored Loan Originations in Compliance With Requirements

In accordance with our audit plan we audited the U.S. Department of Housing and Urban Development’s (HUD) Philadelphia, PA, Homeownership Center’s quality assurance procedures for monitoring originations of Federal Housing Administration (FHA) single-family mortgage loans. Our audit objective was to determine whether the Homeownership Center properly monitored single-family loan originations in its jurisdiction by implementing quality assurance procedures for single-family mortgage loan originations in compliance with HUD requirements. We found that the Homeownership Center generally monitored loan originations in its jurisdiction in compliance with HUD requirements. It met or exceeded its lender review target goals for each performance period within the audit period. It also properly reviewed loan originations for compliance with HUD requirements regarding borrowers’ cash assets used to meet the minimum required investment, employment and income records, liabilities, and credit characteristics.

Issue Date: December 2, 2011
Audit Report No. 2012-LA-0002

Title: HUD’s Statement of Work for Appraisal Field Review Services Did Not Always Require Sufficient Confirmation of an Interior Review

We audited the U.S. Department of Housing and Urban Development’s (HUD) field review appraisal process. This audit was conducted as part of the HUD Office of Inspector General’s (OIG) fiscal year 2011 annual audit plan and was designed to follow up on selected findings in OIG’s Audit Report 2008-LA-0003 on the appraiser review process. Our objective was to determine whether HUD (1) ensured that field review appraisers complied with the appraisal review process requirements and (2) paid contractors according to the scope of work performed.

We found that HUD had ensured that the field review appraisers complied with the interior review inspection requirements and the contract field reviews appraisers were paid according to the scope of work performed. However, HUD’s statement of work for appraisal field review services did not always require sufficient confirmation of an interior review. As a result, we recommend that the Acting Deputy Assistant Secretary for Single Family Housing amend the statement of work for appraisal field review services to require that an interior photograph be taken in all instances in which an interior review is performed.

Issue Date: November 16, 2011
Audit Report No. 2012-LA-0001

Title: HUD Did Not Adequately Support the Reasonableness of the Fee-for-Service Amounts or Monitor the Amounts Charged

We initiated a review of the U.S. Department of Housing and Urban Development’s (HUD) oversight of the Housing Choice Voucher program’s fee-for-service system because it was included in our annual audit plan, prompted by a prior external audit, during which we noted that a housing agency charged management and bookkeeping fees far in excess of the applicable overhead expense while following HUD’s fee-for-service requirements. Our overall audit objective was to determine how HUD arrived at the fee-for-service management and bookkeeping fee limits and whether the methodology and monitoring of these fees appeared reasonable.

HUD did not adequately support or reassess the reasonableness of the fee-for-service amounts or monitor the amounts charged. We reviewed three additional housing agencies and found no indication that they defederalized administrative fees in excess of actual costs; however, HUD data suggest that other housing agencies may have overcharged the Section 8 program by more than $5 million in management fees and more than $1 million in bookkeeping fees.

As a result, we recommend that the Deputy Assistant Secretary for Public Housing and Voucher Programs in coordination with the Real Estate Assessment Center (Center) establish and implement procedures to reassess the safe harbor percentage and rates periodically to ensure that they are reasonable, and retain the documentation justifying the calculation of the percentage and rates. In addition, HUD should assess the feasibility of requiring the agencies to periodically justify and retain documentation showing the reasonableness of using the maximum rates, or lower them as appropriate. We also recommend that HUD (1) develop and implement automated controls to the Subsystem to check that housing agencies nationwide do not charge excessive management and bookkeeping fees, and (2) follow up on the largest discrepancies identified and reassign excessive defederalized funds to the program if the housing agencies cannot provide HUD with a reasonable explanation for the discrepancies.

Issue Date: November 15, 2011
Audit Report No. 2012-FO-0003

Title: Additional Details To Supplement Our Report on HUD’s Fiscal Years 2011 and 2010 Financial Statements

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 20011 and 2010 Financial Statements, which is included in HUD's Fiscal Year 2011 Agency Financial Report.

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

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

Issue Date: November 7, 2011
Audit Report No. 2012-FO-0002

Title: Audit of the Federal Housing Administration’s Financial Statement for Fiscal Years 2011 and 2010

CG is responsible for the attached auditors’ report dated November 3, 2011 and the conclusions expressed in the report. Accordingly, we do not express an opinion on FHA’s financial statements or conclusions on FHA’s internal controls or compliance with laws and regulations and government-wide policies. Within 60 days of this report, CG expects to issue a separate letter to management dated November 3, 2011 regarding other matters that came to its attention during the audit.

The report contains one significant deficiency in FHA’s internal control and two reportable instances of non compliance with laws and regulations. The report contains three new recommendations. Within 120 days of the report issue date, FHA is required to provide its final management decision which includes the corrective action plan for each recommendation. As part of the audit resolution process, we will record three new recommendation(s) in the Department’s Audit Resolution and Corrective Action Tracking system (ARCATS). We will also endeavor to work with FHA to reach a mutually acceptable management decision prior to the mandated deadline. The proposed management decision and corrective action plan will be reviewed and evaluated with concurrence from the OIG.

Issue Date: November 7, 2011
Audit Report No. 2012-FO-0001

Title: Audit of Government National Mortgage Association’s (Ginnie Mae) Financial Statement for Fiscal Years 2011 and 2010

In accordance with the Government Corporation Control Act as amended (31 U.S.C. 9105), the Office of Inspector General engaged the independent certified public accounting firm of Clifton Gunderson LLP (CG) to audit the fiscal years 2011 financial statements of the Government National Mortgage Association (Ginnie Mae). The contract required that the audit be performed according to Generally Accepted Government Auditing Standards (GAGAS). Ginnie Mae fiscal year 2010 financial statements were audited by other auditors; whose report dated November 5, 2010 expressed an unqualified opinion on those financial statements.

CG is responsible for the attached auditors’ report dated November 2, 2011 and the conclusions expressed in the report. Accordingly, we do not express an opinion on Ginnie Mae’s financial statements or conclusions on Ginnie Mae’s internal controls or compliance with laws and regulations and government-wide policies.

This report includes both the Independent Auditors’ Report and Ginnie Mae’s principal financial statements. Under Federal Accounting Standards Advisory Board (FASAB) standards, a general-purpose federal financial report should include as required supplementary information (RSI) a section devoted to Management’s Discussion and Analysis (MD&A) of the financial statements and related information. The MD&A is not included with this report. Ginnie Mae plans to separately publish an annual report for fiscal year 2011 that conforms to FASAB standards.

CG report on internal control identified certain deficiencies in internal control over financial reporting that they consider to be significant deficiencies. In addition, within 60 days of this report, CG expects to issue a separate letter to management dated November 2, 2011 regarding other matters that came to its attention during the audit.

Issue Date: October 31, 2011
Audit Report No. 2012-PH-0001

Title: HUD Needed to Improve Its Use of Its Integrated Disbursement and Information System To Oversee Its Community Development Block Grant Program

We audited the U.S. Department of Housing and Urban Development’s (HUD) use of its Integrated Disbursement and Information System to provide oversight of activities in its Community Development Block Grant program. The audit was performed based on the Office of the Inspector General’s (OIG) annual audit plan and its strategic plan to help HUD improve its fiscal responsibilities. The objective of the audit was to assess the adequacy of HUD’s use of its System to provide oversight of activities in its Block Grant program.

HUD did not adequately use its System to provide oversight of activities under its Block Grant program. HUD was unaware of how grantees used nearly $67 million that it provided them to fund more than 1,300 activities that grantees later cancelled in the System. In addition, HUD lacked adequate oversight of almost $3 billion used to fund more than 20,000 long-standing open activities that grantees had reportedly not completed for up to 11 years.

We recommend that HUD implement policies and procedures requiring it to (1) periodically use the data contained in its System to provide oversight of cancelled and long-standing open or revised activities and (2) evaluate the adequacy of actions grantees take regarding cancelled and long-standing open or revised activities shown in its System. We further recommend that HUD direct responsible grantees to justify the use of nearly $67 million that it disbursed for activities that they later cancelled in the System or repay HUD from non-Federal funds.

Fiscal Year 2011

Issue Date: September 30, 2011
Audit Report No. 2011-FO-0006

Title: American Recovery and Reinvestment Act of 2009 Grantees Met Initial Expenditure Requirements, but HUD Should Return Recaptured Funds to the U.S. Treasury and Ensure That Grant Closeout Procedures Comply With the Act

We audited the U.S. Department of Housing and Urban Development’s (HUD) compliance with initial expenditure requirements related to six programs funded by the American Recovery and Reinvestment Act of 2009 (ARRA). The objectives of our audit were to determine whether (1) HUD grantees complied with their initial expenditure requirements; (2) recaptures were properly recorded and controls over the recapture process existed and complied with the Pay It Back Act; and (3) ARRA funds control plans were appropriately modified to include Pay It Back Act requirements.

Our review determined that HUD met the initial expenditure requirements for five of the six ARRA programs under review. Additionally, the remaining program was on track to meet its initial expenditure requirement by its specific expenditure deadline. However, HUD had $20.85 million in recaptured ARRA funds that must be returned to the U.S. Treasury’s general fund. Additionally, $6.2 million in available funds, which were recaptured before the Pay It Back Act, had not been reallocated and should be sent back to the U.S. Treasury.

We also found that the grant closeout process for two of the six programs may have caused noncompliance with ARRA. Lastly, we found that funds control plans for the selected programs had not been modified to include Pay It Back Act requirements, or modifications had not been reviewed and approved by OCFO.

We recommend that OCFO immediately return $20.85 million in recaptured ARRA funds to the U.S. Treasury general fund in accordance with the Pay It Back Act. Additionally, we recommend that TCAP immediately recapture $6.2 million in deobligated funds to ensure immediate return to the U.S. Treasury. Further, we recommend that HUD direct the ARRA program offices to review and, if necessary, revise grant closeout and fund retention policies and procedures to ensure that funds are expended or recaptured in accordance with ARRA requirements. Finally, we recommend that OCFO review all ARRA funds control plans to determine whether the plans have been appropriately modified and approved to include Pay It Back Act requirements.

Issue Date: September 30, 2011
Audit Report No. 2011-CH-0003

Title: The Office of Healthy Homes and Lead Hazard Control Needs To Improve Its Monitoring of American Recovery and Reinvestment Act Grant Recipients

The U.S. Department of Housing and Urban Development, Office of Inspector General audited the Office of Healthy Homes and Lead Hazard Control’s monitoring of its American Recovery and Reinvestment Act of 2009 grant recipients. The audit was part of the activities in our fiscal year 2011 annual audit plan. We selected Healthy Homes for audit based upon an internal audit suggestion regarding Healthy Homes’ monitoring of its grant recipients related to the Recovery Act. Our objective was to determine whether Healthy Homes monitored its recipients of Recovery Act grants in accordance with Recovery Act and HUD requirements.

Healthy Homes did not maintain documentation in accordance with its requirements to support payments to four recipients totaling more than $4.2 million of the nearly $5 million in grant awards. The payments were made to reimburse the recipients for their claimed grant expenses. Additionally, Healthy Homes did not review the voucher requests for payments in a timely manner.

Documentation to support the recipients’ voucher requests for payment was either missing or not adequate. Healthy Homes accepted operating ledgers, billing summaries, email lists, a list of expenditures, budgets showing the current request by category, and copies of check stubs as support for the voucher requests for payment.

Healthy Homes also did not ensure that recipients’ working file included the required documents and reports such as annual and quarterly documents and reports.

We recommend that HUD’s Director of Healthy Homes and Lead Hazard Control (1) obtain adequate documentation to support the payment of $4,247,991 in Recovery Act funds as cited in this finding, (2) ensure that recipients’ voucher requests for payment are reviewed in a timely manner, (3) implement adequate procedures and controls to correct voucher processing deficiencies, and (4) implement adequate policies and procedures to ensure that recipients’ files contain the documentation and reports required by Healthy Homes’ issued guidance.

Issue Date: September 28, 2011
Audit Memorandum No. 2011-HA-0801

Title: Interim Memorandum Report on the Office of Labor Relations’ Management of the Davis-Bacon Wage Restitution and Deposit Account

In response to a request for review from the Office of the Department Operations and Coordination, we are auditing the Office of Labor Relations (Labor Relations) wage restitution and deposit process. We found Labor Relations has weak internal controls over their Deposit account. Our objective was to gain an understanding of the deposit process and determine whether the controls used to administer and distribute restitution payments were adequate.

We found complete responsibility for managing the deposits, processing payments, and reporting for the deposit account was vested in Labor Relations’ senior policy advisor. Labor Relations’ internal controls were deemed weak because only one person was designated to manage these duties. The result of this lack of segregation of duties heightens the risk of undetected errors and allows opportunities to misappropriate funds or conceal intentional misstatements of wage restitution payments and refunds.

We believe the Director of the Office of Departmental Operations and Coordination needs to immediately segregate the duties for managing the deposit account that are performed by the advisor.

We recommended Office of the Department Operations and Coordination reassign and disperse among the Labor Relations regional offices the duties of tracking the deposit transactions and certifying payment vouchers. Decrease the senior policy advisor’s access to LR2000 to a level lower than that of the system administrator. Ensure that the Director of Labor Relations has final approval authority over all vouchers for payments to workers or refunds to depositors. Also, ensure that the Labor Relations balance for the deposit account is immediately reconciled with the balance reported by the Office of the Chief Financial Officer.

Issue Date: September 27, 2011
Audit Report No. 2011-HA-0004

Title: HUD Could Not Identify Whether Its Properties Had Been Included in the Recovery Act Weatherization Assistance Program

We audited the Office of Sustainable Housing and Communities’ implementation of the U.S. Department of Housing and Urban Development’s (HUD) partnership with the U.S. Department of Energy (DOE) to coordinate Federal weatherization efforts nationwide. This audit was part of our fiscal year 2010 audit plan. Our objective was to determine whether HUD multifamily properties were eligible to receive American Recovery and Reinvestment Act funding under DOE’s Weatherization Assistance Program.

We could not answer our objective because HUD did not have records on which properties had been weatherized. Although HUD entered into a memorandum of understanding with DOE to improve energy efficiency in its qualified housing properties, HUD did not require DOE to provide data on which HUD qualified housing properties had been selected to be weatherized. Specifically. HUD did not require DOE to report which HUD properties participated in the weatherization program. This condition occurred because HUD did not define or communicate its expectation for measuring whether its properties had been weatherized. As a result. HUD could not identify improved properties or cost savings achieved through reduced energy-costs.

We recommend that the Director of the Office of Sustainable Housing and Communities request reports from DOE that identify which HUD qualified housing properties have been weatherized.

Issue Date: September 26, 2011
Audit Report No. 2011-KC-0004

Title: FHA Did Not Prevent Corporate Officers of Noncompliant Lenders From Returning to the FHA Program

The U.S. Department of Housing and Urban Development – Office of Inspector General audited the Federal Housing Administration because we noted during previous audit work that FHA might not have a system in place to track lenders who voluntarily left the FHA program with outstanding indemnification agreements. Our objective was to determine whether FHA prevented corporate officers from participating in FHA programs after those officers left other lenders that did not honor their FHA indemnification agreements.

FHA did not prevent lenders’ corporate officers from participating in FHA programs after those officers left other lenders that did not honor their FHA indemnification agreements. We found 12 different corporate officers who were participating in the FHA program after leaving 7 lenders that did not honor their indemnification agreements and had lost their FHA approval. However, FHA lacked the authority to prevent these corporate officers from reentering the FHA program.

We recommend that FHA seek legislative and program rule changes to prevent lenders and their corporate officers with unsatisfied indemnification agreements from reentering the FHA program as the same or a new lender.

Issue Date: September 26, 2011
Audit Report No. 2011-KC-0003

Title: HUD Did Not Ensure That Housing Authorities Resolved Items on the Multiple Subsidy Report in a Reasonable Amount of Time

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited the U.S. Department of Housing and Urban Development’s (HUD) oversight of tenants who improperly received multiple housing subsidies in the Section 8 and public housing programs. Our objective was to determine whether HUD ensured that housing authorities resolved items listed on the Enterprise Income Verification (EIV) system’s multiple subsidy report in a reasonable amount of time.

We found that HUD did not ensure that housing authorities resolved an estimated 3,636 items listed on the EIV multiple subsidy report in a reasonable amount of time, to eliminate the occurrence of an estimated $340,679 in improper subsidy payments.

We recommended that HUD notify housing authorities of the possible imposition of sanctions on those housing authorities that 1) fail to recover or attempt to recover improper subsidy payments or 2) fail to properly use the EIV system. Additionally, we recommended that HUD modify the EIV multiple subsidy report to show the date that the tenant was flagged as potentially receiving multiple rental assistance and include an aging table to identify how long tenants have appeared on the report. Finally, we recommended that HUD implement a process to monitor and follow up with housing authorities on all tenants listed on the EIV multiple subsidy report that have been flagged for 6 months or more and ensure housing authorities implement appropriate corrective action(s) to eliminate the occurrence of improper subsidy payments.

Issue Date: August 26, 2011
Audit Report No. 2011-AO-0002

Title: The Lafayette Parish Housing Authority, LA, Generally Followed Requirements When Obligating and Expending Its Public Housing Capital Fund Stimulus Recovery Act funds But Did Not Always Comply With Recovery Act Procurement and Reporting

As a spinoff of a prior assignment and as part of our annual audit plan, the U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited the Lafayette Parish Housing Authority’s (Authority) Public Housing Capital Fund Stimulus Recovery Act funded grant. Our objective was to determine whether the Authority followed HUD and American Recovery and Reinvestment Act of 2009 requirements. Specifically, we wanted to determine whether the Authority (1) properly obligated and expended its Recovery Act capital funds, (2) accurately reported its Recovery Act activities, and (3) followed Recovery Act requirements when procuring contracts for goods or services.

The Authority generally followed Recovery Act requirements when obligating and expending its Public Housing Capital Fund Stimulus Recovery Act funded grant. However, it did not always (1) enter its Recovery Act activities into the Recovery Act Management and Performance System (RAMPS), (2) report its Recovery Act activities by specified deadlines in neither RAMPS nor federalreporting.gov, or (3) enter accurate Recovery Act expenditure information into federalreporting.gov, as required. In addition, the Authority could not justify its reported estimates of jobs created or retained. These conditions occurred because the Authority did not have (1) adequate or experienced staff to perform the reporting function after its deputy director resigned or (2) adequate record-keeping practices. As a result, the Authority provided minimal transparency of and accountability for its Recovery Act activities.

The Authority generally procured its Recovery Act contract in accordance with Federal regulations. However, it did not (1) amend and label its written procurement policy for use with only Recovery Act grant procurements, as required, or (2) include HUD-required provisions in its Recovery Act-funded contract. These conditions occurred because the Authority ignored HUD’s recommendations to correct the procurement policy and did not have adequately trained staff. As a result, it was at risk, during the Recovery Act funding period, of exposure to disputes over contract selections. Further, by not having the proper contract provisions, the Authority may not have been able to enforce those regulatory provisions with its contractors.

We recommend that HUD’s Deputy Assistant Secretary for Field Operations require the Authority to (1) correct inaccurate Recovery Act expenditure amounts reported in federalreporting.gov for the second and fourth quarters of 2010 and (2) provide justification for its estimates of jobs created or retained in federalreporting.gov for the second, third, and fourth quarters of 2010 and the first quarter of 2011. Since the Authority had completed its Recovery Act program, we did not provide a recommendation regarding the procurement violation.

Issue Date: July 28, 2011
Audit Report No.: 2011-DP-0008

Title: The Disaster Recovery Grant Reporting System that Maintained Recovery Act Information Had Application Security Control Deficiencies

We audited the Disaster Recovery Grants Reporting (DRGR) system to determine whether adequate controls were in place to safeguard and accurately track and report $1.93 billion in American Recovery and Reinvestment Act of 2009 (Recover Act) funds allocated to the Office of Community Planning and Development’s (CPD) Neighborhood Stabilization Program 2. We found that the improvements that CPD made to the DRGR system within the last year were beneficial to the overall assurance that the system’s data were properly maintained, safeguarded, and in compliance with Federal regulations. However, in order for HUD to address Recovery Act requirements for accurate data requirements, additional improvements should be made to the DRGR system. We recommend that CPD modify the DRGR system to improve its application controls. Also, the DRGR system owner needs to coordinate with the Office of the Chief Information Officer to ensure that the 1) security documentation is updated, 2) contingency plan is adequately tested, and 3) DRGR system is included in the annual disaster recovery test as it is a mission-critical application. OIG has determined that the computer security related contents of this report would not be appropriate for public disclosure and is releasing this redacted version to the public.

Issue Date: July 22, 2011
Audit Report No.: 2011-DP-0007

Title: Review of the National Environmental Policy Act and Core Activity Modules Within the Recovery Act Management and Performance System

We audited the U.S. Department of Housing and Urban Development’s (HUD) management procedures, practices, and controls related to the Recovery Act Management and Reporting System (RAMPS). Our objective was to assess its capability to record and provide data required by the American Recovery and Reinvestment Act of 2009 on which HUD is required to report.

Overall, RAMPS had the capability to record Recovery Act data and produce the reports necessary for HUD to comply with the Recovery Act reporting requirements. However, we identified areas in which vulnerabilities existed. These vulnerabilities could compromise the validity of the information that is required to be disclosed to the public.

We recommend that the Office of the Chief Information Officer ensure that (1) reports required by the Recovery Act are accurate and complete, (2) access controls over RAMPS adequately protect Recovery Act data that are required to be disclosed to the public, and (3) the RAMPS technical problem reporting process is limited to a single point of contact.

Issue Date: July 15, 2011
Audit Report No.: 2011-HA-0003

Title: HUD Needs To Obtain Complete Documentation To Close Ginnie Mae Contracts

We audited the Office of the Chief Procurement Officer’s (procurement office) procedures for closing out completed and expired Government National Mortgage Association (Ginnie Mae) contracts in compliance with applicable regulations. This audit was part of our audit plan for fiscal year 2010. Our objective was to determine whether the procurement office performed timely closeouts on completed and expired Ginnie Mae contracts.

The procurement office did not obtain documentation from Ginnie Mae to close out completed and expired Ginnie Mae contracts in a timely manner. The procurement office did not follow the Federal Acquisition Regulation (FAR) and U.S. Department of Housing and Urban Development (HUD) guidelines for contract closeout procedures. In addition, Ginnie Mae did not follow HUD’s guidelines for contract closeout. The procurement office did not have access to Ginnie Mae’s financial systems or data and Ginny Mae did not always retain documentation needed to close aged contracts.

We recommended that HUD’s Chief Procurement Officer (1) ensure that her staff follows the closeout procedures and the FAR time standards for closing out contracts and (2) clearly define the type and frequency of financial data Ginnie Mae needs to provide to the procurement office to close out contracts.

We recommended that the President of Ginnie Mae require his staff to (1) follow the procurement office’s policies and procedures for closing out contracts, (2) retain complete contract files until contracts are formally closed, and (3) routinely provide the required financial data to HUD’s procurement office.

Issue Date: July 15, 2011
Audit Report No.: 2011-LA-0003

Title: Office of Public Housing, San Francisco, CA, Monitored Recovery Act Grants Awarded to Region IX Public Housing Authority Grantees in Accordance With Applicable Requirements

We audited the monitoring practices that the San Francisco Office of Public Housing (SF OPH) used to monitor American Recovery and Reinvestment Act of 2009 supplemental capital formula and competitive grants awarded to public housing agencies in Region IX. The audit was conducted in accordance with a mandate to review the U.S. Department of Housing and Urban Development’s (HUD) monitoring of Recovery Act funds to determine whether there were safeguards to ensure that grantees used funds for their intended purposes. Our objective was to determine whether SF OPH (1) used HUD’s risk assessment process to select Recovery Act grantees for monitoring, (2) monitored grantees’ administration of the grant for compliance with Recovery Act requirements, and (3) monitored grantees to ensure timely obligation and expenditure of Recovery Act funding. We determined SF OPH in Region IX complied with HUD policies for monitoring Recovery Act grantees selected through the risk assessment process. It also monitored grantees’ administration of the grant for compliance with Recovery Act requirements and provided increased transparency and adequate monitoring of Recovery Act expenditures.

Issue Date: June 27, 2011
Audit Report No.: 2011-NY-0002

Title: HUD Could Improve Its Financial Reporting Process for Obtaining Information on Public Housing Authorities’ Pension and Other Postemployment Benefit Obligations

We conducted an audit of the U.S. Department of Housing and Urban Development’s (HUD) controls over public housing authorities’ (PHA) reporting and accounting for pension and other postemployment benefit obligations. Our concern was whether HUD needed to take action to reduce benefits or provide additional funding to ensure the continued viability of PHAs. Our objectives were to determine whether HUD verified that PHAs (1) submitted independent public accountant (IPA) reports that complied with HUD and Governmental Accounting Standards Board (GASB) requirements when reporting on accrued pension liability and other postemployment benefit obligations, (2) properly reported supporting information for their computations of the pension and other postemployment liability costs, and (3) reported that they set aside the necessary amount of monetary assets to meet their accrued pension and other postemployment benefit obligations.

HUD had procedures to generally ensure that PHAs properly reported and accounted for pension and other postemployment liabilities and reported that they reserved sufficient funds to cover these costs. Specifically, HUD (1) reasonably verified that PHAs submitted financial data schedules and IPA reports that generally complied with HUD and GASB requirements when reporting on accrued pension liabilities and other postemployment benefit obligationss, and (2) generally verified that PHAs properly reported supporting information for their computations of pension and other postemployment liability costs. However, although HUD had general procedures to determine whether PHAs reported that they set aside the necessary amount of monetary assets to meet their accrued pension and other postemployment benefit obligations, improvements could be made in the financial reporting process.

We recommended that the Assistant Secretary for Public and Indian Housing require PHAs to report more information on pension and other postemployment benefit obligations by prescribing a contra-asset line item in the restricted monetary asset section of its financial data schedule template for PHAs to report amounts (such as contributions, earmarks, forfeitures, etc.) that will be used by PHAs to pay their future pension and other postemployment benefit obligations.

Issue Date: June 23, 2011
Audit Report No.: 2011-KC-0002

Title: HUD’s Region VII Office of Community Planning and Development Complied With HUD’s Monitoring Requirements for Recovery Act Recipients

The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General audited HUD’s Region VII Office of Community Planning and Development (CPD) to determine whether it complied with HUD’s monitoring requirements for Recovery Act recipients. The Region VII CPD office complied with HUD’s monitoring requirements for Recovery Act recipients. It appropriately established and implemented a risk assessment process to target Recovery Act grantees for review, and appropriately monitored grantees. This report contains no formal recommendations, and no further action is necessary.

Issue Date: June 22, 2011
Audit Report No.: 2011-AO-0001

Title: The Lafayette Parish Housing Authority, Lafayette, LA, Violated HUD Procurement Requirements and Executed Unreasonable and Unnecessary Contracts

In response to a congressional and U.S. Department of Housing and Urban Development (HUD) request to review allegations of corruption and mismanagement, we audited the Lafayette Parish Housing Authority’s (Authority) operations of its (1) public housing program and (2) Disaster Housing Assistance Program (DHAP). Our objective was to determine whether the Authority operated in accordance with HUD’s and other requirements. Specifically, we wanted to determine whether the Authority (1) complied with requirements in the procurement and monitoring of its contracts and (2) ensured that its contracts were reasonable and necessary.

The Authority neither properly administered its contracting activities, as it violated a number of HUD procurement requirements, nor ensured that its contracts were reasonable and necessary. The Authority also paid its contractors, including its DHAP contractors (1) outside of specified contract timeframes, (2) in excess of specified contract amounts, and (3) excessive contract increases. These conditions occurred because the Authority did not have adequate controls, as it did not maintain (1) a procurement policy that was consistent with Federal regulations, (2) a contract administration system to ensure that its contractors performed according to contract terms, (3) a written code of standards of conduct governing the performance of its employees engaged in the award and administration of contracts, (4) a contract register, and (5) written contract monitoring policies and procedures, or have a contract monitor. In addition, the Authority did not perform cost or price analyses. Further, it did not (1) have adequately trained staff, adequate staffing levels or oversight, and was poorly managed. As a result, it could not provide reasonable assurance that more than $2.9 million in disbursements from its operating and/or capital fund was spent properly; protected from fraud, waste, and abuse; or used to benefit program participants.

The Authority also did not always ensure that its contracts were reasonable and necessary. This condition occurred because the Authority did not perform cost or price analyses or ensure that its procedures provided for a review of proposed procurements to avoid the purchase of unnecessary or duplicative items as required. As a result, the Authority could not provide reasonable assurance that HUD funds were used (1) effectively and efficiently or (2) to benefit program participants. In addition, HUD funds may have been exposed to fraud, waste, and abuse.

We recommend that HUD’s Deputy Assistant Secretary for Field Operations require the Authority to (1) support or repay from non-Federal funds the portion of the more than $2.9 million in operating and/or capital funds that it cannot support; (2) modify its procurement policy to reflect applicable State and local laws and regulations and applicable Federal laws; (3) implement additional internal controls related to its procurement and monitoring activities including, maintaining a contract administration and written code of standards governing the performance of its employees; (4) ensure that its staff attend HUD-approved procurement training, which includes contract administration and oversight; (5) ensure that it maintains adequate levels of competent staff; (6) immediately cease payments to the DHAP accounting specialist working without an executed contract and support or repay any amounts that it cannot support from non-Federal funds for funds disbursed after the contract expired; and (7) remain under HUD receivership for at least a year or until it can demonstrate to HUD that its procurement and other practices consistently meet Federal requirements. After the HUD receivership is lifted and an Executive Director is hired, HUD should place the Authority on a zero dollar threshold, for at least a year or until it can demonstrate to HUD that its procurement and other practices consistently meet Federal requirements. In addition, we recommend that the Director of HUD’s Departmental Enforcement Center take appropriate administrative action, up to and including debarment, against the former deputy director.

We also recommend that HUD’s Deputy Assistant Secretary for Field Operations require the Authority to (1) perform a cost or price analysis in connection with every procurement action and (2) review proposed procurements to avoid the purchase of unnecessary or duplicative items.

Issue Date: June 14, 2011
Audit Report No.: 2011-KC-0001

Title: FHA Has Improved Its Annual Lender Renewal Process, but Challenges Remain

The U. S. Department of Housing and Urban - Office of Inspector General audited the Federal Housing Administration’s (FHA) Title II single-family lender renewal process. Our objective was to determine whether FHA’s Lender Approval and Recertification Division’s (Division) controls were adequate for determining whether lenders met FHA annual renewal requirements.

The Division had taken significant steps to strengthen its controls over the lender renewal process; however, additional improvements are needed. The process still had weaknesses related to Mortgagee Review Board referrals, lender financial information review, and data and renewal fee calculations in the Division’s lender recertification tracking system. These weaknesses resulted in an increased risk that noncompliant lenders were allowed to continue participating in the FHA program, the Division being less able to effectively monitor lenders, and lenders paying lower fees than required.

We recommend that the Deputy Assistant Secretary for Single Family Housing require the Division to improve controls over the lender recertification process and make changes to the Institutional Master File system to ensure data integrity.

Issue Date: June 14, 2011
Audit Memorandum No.: 2011-BO-0801

Title: HUD’s Controls over Energy Audits and Using Recovery Act Funds for Energy Equipment Did Not Warrant Further Audit Testing

We reviewed the U.S. Department of Housing and Development’s (HUD) process for ensuring that grantee public housing agencies (PHA) receiving American Recovery and Reinvestment Act of 2009 (Recovery Act) Capital Funds complied with Section 152 of the 2005 Energy Act. We reviewed this process because during a recent Recovery Act audit we identified some non-Energy Star compliance and premature replacement purchases and during 2008 grantees paid $1.6 billion for utilities, representing 24 percent of their operating costs. Our objectives were to evaluate HUD’s management controls to ensure that grantees (1) conducted energy audits and implemented cost-saving measures, (2) purchased equipment that met Federal efficiency standards, and (3) only replaced equipment that was obsolete or near the end of its expected useful life.

HUD’s controls over energy audits could be improved to ensure that grantees conduct energy audits and implement cost-saving measures. However, HUD indicated that the controls should be improved in fiscal year 2012 when new regulations are issued, and HUD included new energy audit procedures and directed grantees to complete energy audits at least every 5 years as part of its physical needs assessment process. Also, the review showed that grantee PHAs generally purchased equipment that met Federal efficiency standards, and 14 of 15 grantee PHAs evaluated completed energy system modernization in accordance with their annual and/or 5-year plan.

Issue Date: June 6, 2011
Audit Report No.: 2011-CH-0002

Title: HUD's Oversight of Its Multifamily Housing Subsidy Payment Review Process Needs Improvement

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's multifamily housing subsidy payment review process based upon a HUD employee’s complaint. The complaint alleged that HUD lacked controls over its multifamily housing subsidy payment review process and voucher specialists were understaffed and underpaid. Our audit objective was to determine whether HUD had adequate controls over its multifamily housing subsidy payment review process.

HUD’s oversight of its multifamily housing subsidy payment review process needs improvement. Specifically, the review and processing of HUD’s multifamily housing subsidy payments relating to the vouchers that exceeded the threshold amount, were submitted manually, or were submitted at least 1 year later than the voucher date were inadequate. The Financial Operations Division of HUD’s Multifamily Office of Housing Assistance Contract Administration Oversight did not comply with its written voucher review procedures. Of the 85 vouchers reviewed, the required information was not present in the system to support $588,869 of the more than $1.2 million in housing assistance payments for 30 vouchers. In addition, more than $28.5 million was provided for 12 vouchers that were not in HUD’s Tenant Rental Assistance Certification System (system), and lacked a valid waiver for not being in system, and a review of these vouchers was not conducted as required by HUD’s regulations.

As of May 13, 2010, the Financial Operations Division had paid 106 vouchers for contracts administered by the traditional contract administrators that totaled more than $2.5 million in housing assistance for the period October 1, 2008, through November 30, 2009, without conducting a review as required by its system. In addition, based on our review of four vouchers for contracts administered by the performance-based contract administrators, all four vouchers did not have the required information in the system to support more than $131,000 in housing assistance payments.

The system generated an incorrect message requiring a review of the vouchers by the Financial Operations Division for contracts administered by the performance-based contract administrators. As of January 27, 2010, 1,472 vouchers for the period October 1, 2008, through November 30, 2009, had been identified by the system as requiring a review by the Financial Operations Division. Also, the system did not select nine vouchers for which the voucher amount exceeded the contract’s threshold amount, contrary to the voucher selection process. Further, staff other than the voucher specialists released payments on 34 vouchers for contracts administered by traditional contract administrators without a review. As a result, HUD lacked assurance that housing assistance payments totaling more than $77,600 were provided in accordance with its regulations.

We recommend that the Director of Office of Housing Assistance Contract Administration Oversight (1) require the property owners and/or contract administrators to correct deficiencies identified or offset subsidy payments totaling more than $830,000 and (2) implement adequate procedures and controls to address the findings cited in this audit report to correct an error in voucher processing at the rate of 26.8 percent or 1,054 of 3,932 vouchers.

Issue Date: May 25, 2011
Audit Report No.: 2011-HA-0002

Title: HUD Improved Its Administration of Interagency Agreements

We audited the Office of the Chief Procurement Officer’s (procurement office) administration of interagency agreements (IAAs). This audit was part of our fiscal year 2010 audit plan because of congressional hearings on the use and management of IAAs throughout the Federal Government. Our objective was to determine whether the U.S. Department of Housing and Urban Development (HUD) effectively administered its IAAs and the costs to procure these products and services were reasonable.

The procurement office improved its administration of IAAs by significantly reducing the backlog of expired IAAs. However, it must ensure that current IAAs are closed out in a timely manner. We also found that the costs HUD incurred to procure the products and services via IAAs were reasonable.

There are no formal recommendations because the Chief Procurement Officer had already addressed the noted issues based on our previous audit.

Issue Date: May 20, 2011
Audit Report No.: 2011-FO-0005

Title: HUD Can Improve Its Oversight of ARRA Obligation and Expenditure Requirements

We audited the U.S. Department of Housing and Urban Development’s (HUD) compliance with obligation deadlines and progress toward meeting expenditure requirements related to eight programs funded by the American Recovery and Reinvestment Act of 2009 (ARRA). The objectives of our review were to determine whether HUD obligated ARRA funds in accordance with applicable deadlines and to assess HUD’s oversight of grantees’ expenditure of ARRA funds and HUD’s internal requirements.

Our review determined that $1.6 million in Public Housing Capital Fund and Native American Housing Block Grant funds, recaptured after July 21, 2010, must be returned to the U.S. Treasury under the provisions of the Pay it Back Act. Additionally, we found that ARRA monitoring and oversight could be better documented in HUD’s funds control plans.

We recommend that the Office of the Chief Financial Officer ensure that the $1.6 million in recaptured funds is returned to the U.S. Treasury as required by the Pay it Back Act. We also recommend that the Office of the Chief Financial Officer establish and implement procedures to ensure the accuracy and completeness of ARRA funds control plans.

Issue Date: May 13, 2011
Audit Report No.: 2011-BO-0001

Title: Office of Public Housing, Boston, MA, Monitored Recovery Act Grants Awarded to Region 1 Public Housing Authority Grantees in Accordance With Applicable Requirements

We audited the monitoring conducted by the Office of Public Housing (PIH), in Region 1 of their Recovery Act Capital Fund Grantees, for compliance with the Recovery Act and applicable U.S. Department of Housing and Urban Development (HUD) regulations, policies and procedures.

Our objective was to determine whether PIH in Region 1 (1) monitored Recovery Act grantees identified by the risk assessment process HUD established and implemented for selecting Recovery Act grantees for monitoring, (2) monitored grantees’ administration of the grant for compliance with Recovery Act requirements, and 3) provided increased transparency and adequate monitoring of expenditures.

PIH in Region 1 monitored its Recovery Act Capital Fund grants according to Recovery Act requirements and applicable HUD regulations, policies and procedures. The report did not contain any findings.

Issue Date: April 26, 2011
Audit Report No.: 2011-FW-0002

Title: The Office of Healthcare Programs Could Increase Its Controls To More Effectively Monitor the Section 232 Program

We audited the U. S. Department of Housing and Urban Development’s (HUD) Section 232 program as part of the Office of Inspector General’s (OIG) goal of contributing to the improvement of HUD’s execution and accountability of fiscal responsibilities. Our objective was to determine whether HUD had implemented adequate controls to properly monitor Section 232-insured mortgages.

We found that HUD’s Office of Healthcare Programs had taken steps to strengthen the Section 232 program by implementing new monitoring controls. However, additional steps can be taken to strengthen the controls which were sometimes inconsistent or vague, and ensure punch lists are followed. Further, the Office of Healthcare Programs could place a higher priority on enforcing regulatory issues. By increasing these controls, it will more effectively monitor the program and be aware of ongoing regulatory violations, which increase the likelihood of undetected program fraud, waste, and abuse at its at-risk properties.

We recommend that the Deputy Assistant Secretary, Office of Healthcare Programs, develop and implement additional policies and procedures to strengthen controls and detect, correct, and prevent regulatory violations.

Issue Date: April 18, 2011
Audit Report No.: 2011-LA-0002

Title: HUD Did Not Always Follow its Requirements for the Preclosing and Postclosing Review of Mortgage Files Submitted by New Direct Endorsement Lenders

We audited the U.S. Department of Housing and Urban Development’s (HUD) preclosing and postclosing loan review of new Federal Housing Administration (FHA) direct endorsement lenders to determine whether HUD followed its guidance when (1) reviewing the initial loans underwritten by new FHA direct endorsement lenders and (2) performing the postendorsement technical review of all of the initial loans endorsed by newly approved direct endorsement lenders. This audit was conducted as part of the HUD Office of Inspector General’s (OIG) fiscal year 2010 annual audit plan and was designed to follow up on selected findings in the Government Accountability Office’s November 2004 audit report on HUD’s oversight of FHA lenders.

We found that, although improvements had been made, HUD continued to grant unconditional direct endorsement authority to some new FHA direct endorsement lenders (new lenders) that did not successfully complete HUD’s requirements for unconditional direct endorsement authority. Specifically, 7 of the 155 lenders reviewed did not successfully complete the 15 required test cases but, nevertheless, were granted unconditional direct endorsement authority.

We also found that HUD did not follow its guidance for the postendorsement technical review of all loans initially endorsed by new lenders that were approved for unconditional direct endorsement authority (newly approved lenders). HUD only performed the required reviews on approximately half of the initial loans endorsed. In addition there was no single report available to properly monitor newly approved lenders, but officials were working to create one.

We recommend that the Deputy Assistant Secretary for Single Family Housing require HUD’s Homeownership Centers to improve controls to ensure that they follow the guidance for granting new lenders unconditional direct endorsement authority. Additionally, we recommend that the Deputy Assistant Secretary for Single Family Housing ensure that the required number of cases endorsed by newly approved lenders is selected for review and establish a report that could be used by the Homeownership Centers to properly monitor the performance of these lenders.

Issue Date: April 8, 2011
Audit Report No.: 2011-FW-0001

Title: The National Servicing Center Implemented the FHA-HAMP Loss Mitigation Option in Accordance With Rules and Regulations

We audited the U. S. Department of Housing and Urban Development’s (HUD’s) National Servicing Center’s (NSC) Federal Housing Administration (FHA)-Home Affordable Modification Program (HAMP) as a part of our annual audit plan. Our objective was to determine whether the NSC implemented and operated FHA-HAMP in accordance with rules and regulations.

Overall, the NSC implemented and operated FHA-HAMP in accordance with the necessary rules and regulations. However, we identified three areas that the NSC needed to improve. These three areas were identifying failed FHA-HAMP trial plans, identifying duplicate FHA-HAMP payments, and improving the timeliness of trial payments.

We recommended that the Acting Director of the Office of Single Family Asset Management to require the NSC to (1) develop a default status code for failed FHA-HAMP trial plans and (2) clarify its timeliness of trial payments.

Issue Date: March 24, 2011
Audit Report No.: 2011-DP-0006

Title: HUD’s Controls Over Selected Configuration Management Activities Need Improvement

We audited the U.S. Department of Housing and Urban Development’s (HUD) controls over selected configuration management (CM) activities. This audit was based on work performed during our fiscal year 2009 and 2010 reviews of information system security controls in support of the annual financial statement audits. During those audits, we identified weaknesses in security controls over selected CM activities. HUD had processes and procedures for managing the configurations of systems in HUD’s computing environment. However, those procedures were not always followed. Specifically, (1) CM documentation for the eTravel and Integrated Disbursement and Information System (IDIS) Online systems was outdated, and (2) HUD did not consistently follow its own Configuration Change Management Board (CCMB) review and approval process.

We recommended that both the Office of the Chief Financial Officer and the Assistant Secretary for Community Planning and Development update their CM plans and ensure that contractor support staff reviews application CM documentation at least annually and updates the documentation when changes occur. We also recommended that the Office of the Chief Information Officer ensure that all products running on the HUD information technology infrastructure are CCMB approved and that products selected for pilot testing are CCMB approved before conducting the tests.

Issue Date: March 2, 2011
Audit Memorandum No.: 2011-CF-1801

Title: An Underwriting Review of 15 FHA Lenders Demonstrated That HUD Missed Critical Opportunities To Recover Losses to the FHA Insurance Fund

In January 2010, the U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG) began Operation Watchdog, an initiative to review the underwriting of 15 Federal Housing Administration (FHA) direct endorsement lenders having default and claim rates indicating lender performance problems. The FHA Commissioner had expressed concern regarding the increasing default and claim rates against the FHA insurance fund for failed loans, prompting this initiative.

Our review objective was to determine whether each lender underwrote its respective loans in accordance with FHA requirements. To accomplish the objective, we reviewed between 12 and 20 FHA loans underwritten by each of the 15 lenders that resulted in claims against the FHA insurance fund. We reported our results in individual memorandums to HUD. This summary memorandum compiles the results of the Operation Watchdog initiative and expresses OIG's concerns about systemic problems with the underwriting of FHA insured loans and the resulting costs to the FHA insurance fund for loans that should not have been insured.

We recommended in each of the 15 issued memorandums that HUD pursue appropriate remedies under the Program Fraud Civil Remedies Act against each lender and/or its principals for incorrectly certifying to the integrity of the data or that due diligence was exercised during the underwriting of the 140 questioned loans. These loans resulted in actual losses or were expected to result in losses to the FHA insurance fund of more than $11 million. Further, the lenders' improper certifications could result in affirmative civil enforcement actions of more than $23 million. We also recommended that HUD take appropriate administrative action against each lender and/or its principals.

Based on the overall results of the Operation Watchdog initiative and the systemic problems identified, we made an additional recommendation to HUD that it develop and implement procedures to review a statistical or risk-based selection of loans for which FHA paid a claim on the mortgage insurance within the first two years of endorsement, to verify that the loans met FHA requirements and were qualified for insurance. We further recommended that these procedures include a requirement for HUD to seek appropriate civil and administrative remedies to recover losses incurred on loans not qualified for FHA insurance.

Issue Date: February 10, 2011
Audit Report No.: 2011-DP-0005

Title: Although HUD Continued to Make Improvements to Its Entity Wide Security Program, Challenges Remained in Its Efforts to Comply with Federal Information Security Requirements (Report Not Available to the Public)

We have completed an audit of the U.S. Department of Housing and Urban Development's (HUD) information security program. We evaluated whether HUD's Office of the Chief Information Officer (OCIO) had developed security policies, implemented procedures, and continuously monitored its entitywide information system security program. We performed this audit because it is a required component of our fiscal year 2010 consolidated financial statements audit and our annual evaluation of HUD's information system security program in accordance with the Federal Information Security Management Act of 2002 (FISMA). The OIG has determined that the contents of this audit report would not be appropriate for public disclosure and has therefore limited its distribution to selected officials.

Issue Date: February 1, 2011
Audit Report No.: 2011-NY-0001

Title: HUD's Oversight of Public Housing Authorities Energy Performance Contracting in New York and New Jersey Had Not been Sufficient, but HUD Had Taken Appropriate Steps to Improve Controls

We conducted an audit the U.S. Department of Housing and Urban Development's (HUD) oversight of public housing authorities (authority) energy conservation procedures through energy performance contracting (EPC) in the states of New York and New Jersey (Region 2). We initiated the audit as part of the activities in our 2010 annual plan. The audit objectives were to determine whether HUD had adequate controls to ensure that (1) the costs of EPC had been properly repaid from the savings from energy conservation and/or add-on subsidy incentives, (2) utility cost savings on measurement and verification (M&V) reports had been reported in a timely manner, (3) utility cost savings were accurately calculated and energy service companies guaranteed utility cost savings were achieved, and (4) its EPC inventory data were accurate and complete.

HUD's Office of Public and Indian Housing (PIH) staff did not always adequately monitor the authorities with EPC or verify reported information regarding energy cost savings. Specifically, HUD did not have adequate controls in place to ensure that (1) the costs of EPC had been properly repaid from the savings from energy conservation and/or add-on subsidy incentives, (2) utility cost savings had been reported on M&V reports in a timely manner, (3) utility savings had been accurately calculated and guaranteed utility cost savings were achieved, and (4) its EPC inventory data were accurate and complete. We attribute this condition to a lack of adequate controls and training of staff to ensure compliance with the published review procedures and regulations. Therefore, HUD may not have assurance that utility cost savings as guaranteed by the energy service companies was achieved. HUD's PIH headquarters officials were aware of the control weaknesses and had taken corrective actions including making organizational changes to provide additional training and technical support to field office staff and participating authorities.

We recommended that the Deputy Assistant Secretary for Field Operations (1) establish and implement controls to ensure that the costs of EPC have been properly repaid from the savings from energy conservation and/or add-on subsidy incentives, (2) establish and implement controls to ensure that M&V reports are submitted in a timely manner and that data are verified for accuracy, (3) establish and implement controls to verify that actual energy cost savings achieved are equal to or greater than the energy service companies guaranteed energy savings and/or the add-on subsidy incentive amount, (4) provide mandatory training to the appropriate headquarters and field office staff and participating authorities to ensure that they comply with the current and upcoming regulations related to EPC, and (5) establish and implement necessary control procedures to ensure that the EPC database is complete and accurate.

Issue Date: January 25, 2011
Audit Report No.: 2011-PH-0001

Title: HUD Hired Employees in Accordance With Office of Personnel Management Guidelines for Streamlining the Federal Hiring Process

We audited the U.S. Department of Housing and Urban Development's (HUD) process for hiring employees in accordance with Office of Personnel Management (OPM) guidelines. The audit was initiated due to concerns about whether HUD addressed the staffing needs of its Homeownership Centers in a timely manner to address significant increases in single family mortgage workload. Our audit objective was to determine whether HUD effectively hired employees in accordance with OPM guidelines for streamlining the Federal hiring process. We found that HUD generally hired employees in accordance with OPM's 80-day timeframe goal for the Federal hiring cycle. HUD's Office of the Chief Human Capital Officer made improvements that reduced its average cycle time for hiring employees by approximately 37 percent between fiscal years 2008 and 2010; and, met the staffing needs of HUD's 4 Homeownership Centers within the confines of authorized staffing levels. The report contains no recommendations.

Issue Date: January 21, 2011
Audit Report No.: 2011-LA-0001

Title: HUD Did Not Provide Adequate Oversight and Guidance During the Technical Review of the Retreat at Santa Rita Springs

We conducted the audit of the Retreat at Santa Rita Springs (community), a Federal Housing Administration-insured multifamily property under the Section 231 of the National Housing Act, in response to a congressional request from Representative Gabrielle Giffords of the 8th Congressional District of Arizona. In November 2009, the owners of the community defaulted on its $29.9 million U.S. Department of Housing and Urban Development (HUD)-insured loan less than one month after final endorsement.

The community experienced huge operating shortfalls and eventually defaulted on the loan. The financial default was due to HUD's inadequate technical review and monitoring, the lender's failure to exercise due diligence in underwriting the loan, and the owners lack of financial commitment and guidance to its management agent. As a result, the community's loan note was sold to an outside party for approximately $9 million, or more than a $20 million loss to HUD.

We recommend that the Director of HUD's Office of Multifamily Housing Development update the MAP Guide to include rules and requirements for processing Section 231 loans and discontinue processing these types of loans until the MAP Guide is updated. We also recommend that the Director of HUD's Region IX San Francisco Office of Multifamily (1) ensure that all conditions for underwriting are met in processing Section 231 multifamily properties and that there are clear roles, responsibilities and communication among the HUD offices when conducting reviews to minimize potential problems such as those mentioned in this report and (2) improve the regional field office's property management and performance monitoring of Section 231 properties by beginning monitoring immediately upon occupancy to minimize potential financial, operational, and managerial problems related to the properties under the program.

Issue Date: December 7, 2010
Audit Report No.: 2011-FO-0004

Title: Annual Evaluation of HUD's Compliance With Presidential Executive Order 13520, Reducing Improper Payments

We conducted an annual limited scope review of the U.S. Department of Housing and Urban Development's (HUD) compliance with Presidential Executive Order (EO) 13520, Reducing Improper Payments. HUD was in general compliance with EO 13520 annual reporting requirements. We concluded that HUD's ongoing efforts in mitigating the risks of improper payments in the rental housing assistance programs were progressing in a positive direction. However, we noted some areas in which HUD could make enhancements related to disclosure and procedural issues. We also noted specific areas for improvements which would strengthen HUD's improper payment reduction strategies.

Issue Date: December 3, 2010
Audit Report No.: 2011-DP-0003

Title: HUD Did Not Fully Comply With the Requirements of OMB Circular A-127

We audited the U.S. Department of Housing and Urban Development's ability to comply with the requirements of Office of Management and Budget (OMB) Circular A-127, which was revised in January 2009 and became effective on October 1, 2009. We conducted the audit as a component of the audit of HUD's consolidated financial statements for fiscal year 2010 under the Chief Financial Officer's Act of 1990. We found that HUD did not fully comply with the requirements of OMB Circular A-127. Specifically, HUD had not (1) initiated plans to review financial management systems for compliance with computer security and internal control guidelines; and (2) accurately identified HUD's financial management systems within its financial system inventory listing. Additionally, although progress has been made, we continue to have concerns regarding HUD's integrated core financial system. We recommended that the Office of the Chief Financial Officer take appropriate steps to move into compliance with the requirements of OMB Circular A-127.

Issue Date: November 16, 2010
Audit Report No.: 2011-CH-0001

Title: HUD Can Improve Its Oversight of Public Housing Agencies' Section 8 Project-Based Voucher Programs

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's oversight of public housing agencies Section 8 Project-Based Voucher programs (program). The audit was part of the activities in our fiscal year 2010 annual audit plan and our strategic plan to help HUD resolve its major management challenges. Our objective was to determine whether HUD had adequate oversight of public housing agencies programs to ensure that program funds were used in accordance with HUD's requirements.

HUD's Office of Public and Indian Housing lacked complete and accurate information to adequately monitor its program.

HUD's Office of Public and Indian Housing also did not adequately monitor the addition of new projects to its program. It did not implement adequate procedures and controls to ensure that its program was operated according to its and the public housing agencies requirements.

We informed HUD's Deputy Assistant Secretary for Field Operations of a minor deficiency through a memorandum, dated November 16, 2010.

We recommend that HUD's Deputy Assistant Secretary for Field Operations provide additional guidance to public housing agencies to ensure accurate reporting by agencies of their information in HUD's Public and Indian Housing Information Center, the Voucher Management System, and the agencies plans. The reporting requirements should include requiring agencies to certify to the accuracy of their information reported to HUD. In addition, the Deputy Assistant Secretary should (1) issue specific guidance to its field offices so they can ensure that the program's reporting requirements are adequately monitored and (2) implement adequate monitoring procedures and controls for the oversight of its program to ensure that public housing agencies select and adequately document only eligible projects and use program funds in accordance with program requirements.

Issue Date: November 16, 2010
Audit Report No.: 2011-FO-0003

Title: Additional Details to Supplement Our Report on HUD's Fiscal Years 2010 and 2009 Financial Statements

In this report, we provide additional details to supplement our Report on the U.S. Department of Housing and Urban Development's (HUD) Fiscal Years 20010 and 2009 Financial Statements, which is included in HUD's Fiscal Year 2010 Agency Financial Report.

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

Issue Date: November 9, 2010
Audit Report No.: 2011-HA-0001

Title: HUD Did Not Adequately Plan the Procurement of the Management and Marketing Contracts

We performed an audit of the selection of management and marketing contractors for single-family properties owned by the U.S. Department of Housing and Urban Development (HUD). This audit was initiated based on a complaint to our hotline alleging possible mismanagement, political influence, and violations of law in the procurement strategy used to select firms for the third generation management and marketing (M&M III) contracts. Our objective was to determine whether the allegations of mismanagement, political influence, and possible violations of law were valid.

We found the allegation of mismanagement credible; however, we did not find support to substantiate the allegations of political influence or violations of law. The Office of Single Family Asset Management and the Office of the Chief Procurement Officer did not have adequate controls to ensure that the M&M III contracts were awarded in a timely and efficient manner. Specifically, key stakeholders were not included in the initial planning for these contracts, and acquisition plans were not developed in a timely manner. As a result, the M&M III contracts were delayed for nearly a year, and bridge contracts with an estimated cost of more than $275 million had to be awarded to the existing M&M II contractors to avoid a lapse in the management and marketing services.

We recommend that the Deputy Assistant Secretary for Single Family Housing develop controls to award contracts in a timely manner, thus avoiding unnecessary expenditures for extending contracts. We also recommend that the Deputy Assistant Secretary (1) follow the procurement office's established acquisition planning requirements and procurement acquisition lead time (PALT)[1] guidance, (2) submit timely and complete performance work statements on all future contracts, and (3) use in-house resources when forming the integrated program team for all significant acquisitions to avoid unnecessary expenditures such as those paid to a contractor for writing performance work statements.

In addition, we recommend that HUD's Chief Procurement Officer (1) assign significant acquisitions to offices that have sufficient staff and expertise to avoid unnecessary expenditures such as those paid to an administrative support contractor, and (2) ensure that the PALT schedule is followed and require written justification when significant delays are encountered.

Issue Date: November 5, 2010
Audit Report No.: 2011-FO-0002

Title: Audit of the Federal Housing Admininstration's Financial Statements for Fiscal Years 2010 and 2009

This report presents the results Clifton Gunderson's (CG) audit of the fiscal year 2010 and 2009 financial statements of the Federal Housing Administration (FHA). The report on FHA's financial statements, dated November 3, 2010 includes an unqualified opinion on FHA's financial statements. The report contains two significant deficiencies in FHA's internal controls and one reportable instance of noncompliance with laws and regulations. The report contains eight new recommendations. Additionally, it discusses the issues/conditions in detail, provides an assessment of management's responses to the report, and makes recommendations for corrective actions. CG also noted other matters involving internal control and its operation that are not material to the financial statements and are being communicated separately to FHA's management.

Issue Date: November 5, 2010
Audit Report No.: 2011-FO-0001

Title: Audit of Government National Mortgage Association's (Ginnie Mae) Financial Statements for Fiscal Years 2010 and 2009

This report presents the results of Carmichael, Brasher, Tuvell and Company's (CBTC) audit of the Government National Mortgage Association's (Ginnie Mae) financial statements for the fiscal years ended September 30, 2010 and 2009. In CBTC's opinion, the financial statements present fairly, in all material respects, Ginnie Mae's financial position as of September 30, 2010 and September 30, 2009 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.

CBTC's report on internal control did not identify deficiencies internal control over financial reporting that might be considered significant deficiencies or material weaknesses. However, within 60 days of this report, CBTC expects to issue a separate letter to management dated November 5, 2010 regarding other less significant matters that came to its attention during the audit.

Issue Date: November 2, 2010
Audit Report No.: 2011-BO-0001

Title: The Cambridge, MA, Housing Authority Generally Administered Its Public Housing Capital Fund Stimulus (Formula) Recovery Act Funded Grant in Accordance With Applicable Requirement

We audited the Cambridge Housing Authority (Authority) because it obligated a majority of its $4.4 million Public Housing Capital Fund Stimulus (Formula) Recovery Act Funded grant (grant) received under the American Recovery and Reinvestment Act of 2009 just before the required obligation deadline. Our objective was to determine whether the Authority obligated and disbursed capital funds received under the Recovery Act according to the requirements of the act and applicable U.S. Department of Housing and Urban Development (HUD) rules and regulations.

The Authority generally administered its grant according to Recovery Act requirements by obligating and disbursing its capital funds according to applicable HUD rules and regulations.

This report contains no recommendations, and no further action is necessary.

Issue Date: October 6, 2010
Audit Report No: 2011-DP-0001

Title: HUD Did Not Properly Manage HITS Contracts and Contractors To Fully Comply With Contract Requirements and Acquisition Regulations (Report Not Available to Public)

We audited the U.S. Department of Housing and Urban Development's (HUD) management and contractors' performance of the HUD information technology services (HITS) contracts. We reviewed (1) the services provided by the contractors based on HUD's core functional business needs, (2) the levels of contractor performance as outlined in the contracts, (3) HUD's management of the HITS contracts, and (4) compliance with applicable Federal requirements. 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.

Fiscal Year 2010

Issue Date: September 30, 2010
Audit Report No.: 2010-FW-0004

Title: HUD's Oversight of the Hurricane Ike Disaster Housing Assistance Program in Texas Needed Improvement

We audited the Disaster Housing Assistance Program (DHAP)-Ike as part of our ongoing commitment to the U. S. Department of Housing and Urban Development (HUD) to implement oversight of Disaster Recovery funds to prevent fraud, waste, and abuse. HUD used local public housing agencies (housing agencies) to administer DHAP-Ike rental assistance and provide case management services to families affected by Hurricanes Ike and Gustav. Our audit objective was to determine whether HUD ensured that four housing agencies in Texas correctly calculated and paid DHAP-Ike payments to eligible tenants and for eligible units in accordance with program requirements.

HUD did not ensure that the four housing agencies in Texas that received the most assistance followed DHAP-Ike requirements for 51 (75 percent) of the 68 active files reviewed. Further, for 27 (40 percent) of the 68 files reviewed, the housing agencies errors affected the payment or tenant/unit eligibility. These errors occurred because HUD relied on its contractors, did not provide standardized file guidance to the housing agencies, and only performed limited monitoring at the housing agencies. Projecting the results of the statistical sample showed that of the 9,817 families assisted by the four housing agencies, at least 6,374 (65 percent) of the families likely had an error in their file and at least 2,920 (30 percent) of the families payments or eligibility was affected.

We recommend HUD perform additional monitoring of its contractor, provide standardized guidance to the housing agencies, and perform onsite monitoring at the housing agencies. We also recommend that HUD require the four housing agencies to correct the file documentation errors in the 51 identified files and repay or support the 27 questioned payments totaling $48,982.

Issue Date: September 28, 2010
Audit Report No.: 2010-KC-0003

Title: HUD's Written Policies and Procedures for Loan Indemnifications Were Generally Adequate, But Did Not Include Procedures for Pursuing Signed Indemnification Agreements From Lenders

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Lender Activities and Program Compliance, Quality Assurance Division. We did this review because during a prior audit, we saw instances in which indemnification agreements were not obtained from lenders under certain circumstances. Our objective was to determine whether the U.S. Department of Housing and Urban Development (HUD) had adequate controls to track, obtain, and record indemnification agreements from lenders for materially deficient loans.

HUD's Quality Assurance Division had written policies and procedures for determining when an indemnification agreement was appropriate and how to process a signed agreement. However, it did not have written policies and procedures for pursuing the signed indemnification agreement from lenders.

We recommended the Quality Assurance Division develop and implement effective policies and procedures to ensure that its employees consistently pursue signed indemnification agreements.

Issue Date: September 17, 2010
Audit Report No.: 2010-DP-0003

Title: Review of the Effectiveness of HUD's Data Quality Review Processes for the American Recovery and Reinvestment Act of 2009

We audited HUD's internal control structure for ensuring that American Recovery and Reinvestment Act of 2009 (Recovery Act) recipient data are reported completely, accurately, and in a timely manner. We also determined whether material omissions and significant errors were identified correctly. We conducted this audit as part of a joint effort among the Inspector General community under oversight of the Recovery Accountability and Transparency Board.

HUD established the Recovery Implementation Team (Recovery Team), within the Office of Strategic Planning and Management, to monitor and maintain Recovery Act funding and reporting. The Recovery Team's accomplishments as of the March41,2010, reporting period are as follows: (1) Developed policies and procedures for validating recipient reporting, (2) Completed several rounds of validation checks of recipient data, (3) Successfully assisted approximately 99 percent of the prime recipients (4,849 of 4,911) to meet report requirements, and (4) Met with the Office of Inspector General (OIG) on a monthly basis to discuss Recovery Act activities.

The overall quality assurance process completed by the Recovery Team has proven to be successful with HUD's high recipient reporting rate. However, we determined that the Recovery Team should provide additional and updated guidance to HUD program offices pertaining to enforcement actions for non reporting. In accordance with Office of Management and Budget Memorandum 10-17, Federal agencies have additional requirements to ensure that recipients report in a timely manner. The Recovery Team needs to ensure that program offices have implemented this new memorandum and request updated enforcement action procedures from the program offices.

Issue Date: September 15, 2010
Audit Report No.: 2010-LA-0002

Title: HUD's Office of Single Family Housing's Management Controls Over Its Automated Underwriting Process (Redacted Report)

We completed an audit of U.S. Department of Housing and Urban Development (HUD) Single Family Program Development Office's automated underwriting process. We assessed whether HUD had in place appropriate and effective management controls over its automated underwriting process. The audit was performed as part of the HUD Office of Inspector General's (OIG) fiscal year 2010 annual audit plan and supported the audit plan objective to contribute to improving the integrity of the single-family insurance program. The OIG has determined that the full contents of this report would not be appropriate for public disclosure and is releasing this redacted version to the public.

Issue Date: September 13, 2010
Audit Memorandum No.: 2010-NY-0801

Title: Corrective Action Verification, Utica Municipal Housing Authority, Low Rent Housing Program, Utica, New York, Audit Report No. 2006-NY-1005

We completed a corrective action verification review of the audit recommendations for findings 1 and 2 of Audit Report Number 2006-NY-1005, issued February 21, 2006 pertaining to the general operations of the Utica Municipal Housing Authority, Utica, New York (Authority). The purpose of the corrective action verification was to determine whether the selected audit recommendations were implemented and the deficiencies cited in the report were corrected.

The corrective action verification review found that although the Authority has effectively implemented the recommendations, the appropriate action was not taken for all of the recommendations in the audit report on the general operations of the Authority. It was determined that the Authority had certified to the Buffalo Office that it had no unrestricted nonfederal funds available for the repayment of disallowed costs. The Authority also complied with the requirements of REAC's Accounting Issue No.7, concerning disallowed costs, having recorded $618,446 as an ?????????????c???Inter-program Due From??????????????? account for the disallowed costs included in Finding 1 and 2 of the Audit Report. These amounts will remain on the Authority's book until reimbursed with nonfederal funds or written documentation has been received, in a future period, relieving the Authority of its obligation of reimbursement of these monies. Specifically for recommendations 1B, 2C, and 2E, the Buffalo Office followed through with all existing protocols and guidance at the time the audit was conducted. However, based on the implementation of asset management and the existence of Central Office Cost Center nonfederal funds that were not available when these recommendations were initially closed out, we have determined that these recommendations should be reopened in HUD's Audit Resolution and Corrective Action Tracking System (ARCATS) to reflect future reimbursement with nonfederal funds. The Authority established a payable account due to HUD. However, since this account was established and cannot be written-off until the Authority provides evidence to support that their attempts to earn nonfederal funds were unsuccessful; it is necessary for HUD to keep the recommendation open as a receivable in ARCATS until the funds are repaid, or the payable account at the Authority is properly written off.

We recommend that HUD reopen recommendations 1B, 2C, and 2E in HUD's Audit Resolution and Corrective Action Tracking System (ARCATS) to reflect future reimbursement with nonfederal funds.

Issue Date: August 25, 2010
Audit Report No.: 2010-FW-0003

Title: HUD Was Not Tracking Almost 13,000 Defaulted HECM Loans With Maximum Claim Amounts of Potentially More Than $2.5 Billion

We performed an internal audit of the U. S. Department of Housing and Urban Development's (HUD) Home Equity Conversion Mortgage (HECM) program because we found that an increasing number of borrowers had not paid taxes or homeowners insurance premiums as required, thus placing the loan in default. Also, we noted that HUD had granted foreclosure deferrals routinely on defaulted loans, but it had no formal procedures. Our audit objective was to determine whether HUD's adoption and reversal of an informal foreclosure deferral policy for HECM loans that defaulted due to nonpayment of taxes and insurance had a negative effect on the HECM program.

We found that HUD's informal foreclosure deferral policy and its reversal had a negative effect on the universe of HECM loans and loan servicers (servicers). After cancelling its informal policy, HUD did not issue guidance to servicers advising them of what actions to take regarding defaulted loans. Thus, servicers continued to service the loans and paid the taxes and insurance for the borrowers, but they did not notify HUD. As a result, four servicers contacted were holding almost 13,000 defaulted loans with a maximum claim amount of more than $2.5 billion, and two of the four servicers said they were awaiting HUD guidance on how to handle them. Further, the servicers had paid taxes and insurance premiums totaling more than $35 million for these 12,958 borrowers and, if HUD does not take action, additional payments will occur in the next 12 months.

HUD also could not identify the deferred or defaulted loans in the Single Family Data Warehouse and did not track the number of borrowers who were unable to pay their property taxes or insurance premiums. As a result, HUD did not know how many loans had principal amounts increasing because the servicer had added payments for taxes and insurance to the loan amount. Since unreported defaulted loans were only obtained from 4 of a total of 16 HECM servicers nationwide, more defaulted loans may exist. Further, as HUD could not track these loans, it did not know the potential claim amount. In the event of foreclosure of the 7,673 loans for which HUD was aware and 12,958 loans of which it was not aware, HUD could lose an estimated $1.4 billion upon sale of the properties.

We recommend that HUD's Deputy Assistant Secretary for Single Family Housing (1) discontinue the practice of deferring foreclosure due to nonpayment of taxes and insurance which will result in an estimated $35 million in funds being put to better use; (2) issue formal guidance to servicers regarding loans currently in default due to nonpayment of property taxes and insurance, including requiring the servicers to foreclose if the borrowers do not pay the delinquent taxes and insurance; (3) develop and implement a plan to minimize the risk of future defaults due to nonpayment of taxes and insurance; and (4) develop a tracking and reporting system, including making modifications to the Single Family Data Warehouse, to ensure that HUD can track the defaulted loans and the amounts paid for the borrowers.

Issue Date: August 17, 2010
Audit Report No.: 2010-FO-0004

Title: Review of HUD's Property and Equipment

We performed an audit of the U.S. Department of Housing and Urban Development’s (HUD) property and equipment. We performed this audit as a result of recurring findings relating to HUD’s property and equipment reported in the fiscal years 2004 through 2008 management letters. Our objective was to determine whether HUD properly recorded and tracked the acquisition and disposal of its capitalized and other accountable property and equipment.

We found that not all purchases of accountable equipment were recorded in HUD’s inventory management system, the Facilities Integrated Resource Management System (FIRMS). Additionally, HUD lacked sufficient purchase documentation for accountable equipment in FIRMS. We also noted deficiencies in FIRMS and that HUD’s inventory policies and procedures need to be updated. We found that HUD was properly recording and tracking its capitalized equipment.

We recommend that the Deputy Assistant Secretary of the Office of the Chief Human Capital Officer (1) work with the Office of the Chief Information Officer to develop and implement a system which would allow OFMS to identify when equipment is purchased; (2) update and reissue the standard operating procedures for reporting the purchases of equipment and implement a set of standard operating procedures for users of purchase cards; (3) coordinate with the Office of the Chief Financial Officer, Office of the Chief Information Officer, and Office of the Chief Procurement Officer to develop and implement system interfaces; (4) develop and implement a process that can distinguish between capitalized and expensed equipment in FIRMS.

We further recommend that the Chief Procurement Officer and Chief Information Officer work with OFMS to ensure that their employees are properly trained in the procedures for identifying which equipment needs to be reported and are aware of the requirement to report the purchase and in some instances, the lease of equipment to OFMS.

Issue Date: August 9, 2010
Audit Report No.: 2010-BO-0003

Title: Public Housing Authorities Generally Paid Voucher Subsidy Payments to Subsidized Multifamily Properties Correctly

We conducted a national audit of whether public housing authorities overpaid voucher subsidies to multifamily property owners in specific types of subsidized properties. If a public housing authority pays a property owner a subsidized rent at one of these types of properties, the voucher rent should be set at the level of the rent payments to the subsidized multifamily properties, which generally is lower than the public housing authorities payment standard for vouchers. This national audit follows our audit of a subsidized multifamily property in Maine, in which we found that housing authorities caused the overpayments by inappropriately using the fair market rents instead of the lower rents subsidized under Section 236 of the Housing Act of 1959.

Public housing authorities generally did not overpay subsidies to subsidized multifamily properties. We compared addresses of 1.93 million housing choice vouchers with addresses of 17,684 multifamily properties with Federal loans. We identified 193 addresses for which a voucher payment was made to the owner of a subsidized multifamily property. We also found that 148 of these vouchers were reported correctly. The remaining 45 vouchers were incorrectly reported, and these errors will be addressed in separate memorandums to U.S. Department of Housing and Urban Development (HUD) field offices. For these 45 vouchers, we did not find that the vouchers had common property owners, common public housing authorities, or common management agents.

We recommend that HUD update the Housing Choice Voucher Guidebook 7420.10G to include a section on the relationship between properties with Federal loans and the public housing authorities rental payments to those properties owners.

Issue Date: August 6, 2010
Audit Memorandum No.: 2010-HA-0801

Title: HUD's Guidance on Posting Signs for American Recovery and Reinvestment Act Projects

In response to a request from the Recovery Accountability and Transparency Board (Board), we performed a review of the U. S. Department of Housing and Urban Development's (HUD) guidance to the American Recovery and Reinvestment Act (Recovery Act) recipients to post signs, logos, and emblems intended to publicly identify the expenditure of Recovery Act or "stimulus" funds. The Board was asked by Congressman Darrell Issa, ranking member of the Committee on Oversight and Government Reform, to determine the scope and impact of the Obama Administration's guidance to recipients on what he stated was politicized stimulus advertising. The Board in turn asked us to respond to a series of inquiries regarding such advertising as it pertained to HUD's Recovery Act programs. Congressman Issa characterized HUD's stimulus advertising as the most overtly political guidance that "provided recipients a suggested sign template informing the public that projects have been funded by American Recovery and Reinvestment Act, Barack Obama, President."

Our objective was to determine whether HUD required or encouraged its Recovery Act recipients to post signs to publicly identify projects that were funded with stimulus funds. We concluded that for two programs, HUD initially included provisions in the grant agreements requiring posting of signs. HUD subsequently issued agency-wide guidance that "encouraged" Recovery Act recipients to post signs.

Issue Date: August 6, 2010
Audit Report No.: 2010-KC-0002

Title: FHA Delayed Sending Violation Notices to Lenders That Did Not Meet Recertification Requirements

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Federal Housing Administration's (FHA) Title II single-family lender renewal process. The objective of the audit was to determine whether FHA ensured that lenders submitted recertification requirements in a timely manner. We found that FHA did not ensure that lenders submitted recertification forms, annual fees, and/or audited financial statements in a timely manner. The Lender Approval and Recertification Division (Division) did not promptly issue notices of violation to lenders that did not submit required annual recertification documentation and/or fees when due.

We recommend that the Office of Lender Activities and Program Compliance require the Division to revise the recertification process to discontinue issuing notices of deficiency and issue notices of violation promptly for all lenders that do not submit or attempt to submit one or more of the required items by the due date.

Issue Date: June 25, 2010
Audit Report No.: 2010-AT-0001

Title: HUD Evaluated and Selected Applications for the Recovery Act's Neighborhood Stabilization Program 2 in Accordance With Applicable Requirements

We evaluated the U.S. Department of Housing and Urban Development's (HUD) award process for the Neighborhood Stabilization Program 2 (NSP2). We initiated the review as part of the activities in our fiscal year 2010 annual audit plan. Our primary objective was to determine whether HUD's methodology and controls for the evaluation and selection of applications for the $1.93 billion in NSP2 funds were in accordance with applicable requirements. We added a second objective to determine whether HUD included special conditions in the grant agreements of high-risk grantees.

HUD's methodology and controls for evaluating and selecting the applications were in accordance with requirements in the notice of fund availability. HUD followed the required procedures for evaluating applications against threshold requirements, such as program eligibility, and then rated the applications that passed threshold requirements against the six rating factors. At each step, HUD applied quality control procedures to ensure that its decisions were correct and supportable. HUD then ranked the applications according to their scores and properly selected 56 for funding. We expanded our work to review the grant agreements for the 56 selected grantees and found that HUD included special conditions as required by the regulations.

There are no recommendations in this report since no reportable deficiencies were identified.

Issue Date: May 14, 2010
Audit Report No.: 2010-DP-0002

Title: Fiscal Year 2009 Review of Information Systems Controls in Support of the Financial Statements Audit (Report Not Available to the Public)

We reviewed general and application controls for selected information systems to assess management controls over the U.S. Department of Housing and Urban Development's (HUD) computing environments as part of the Office of Inspector General's (OIG) audit of HUD's financial statements for fiscal year 2009 under the Chief Financial Officer's Act of 1990. Our review was based on the Government Accountability Office's "Federal Information Systems Controls Audit Manual" and information technology guidelines established by the Office of Management and Budget, and the National Institute of Standards and Technology. The OIG has determined that the contents of this report would not be appropriate for public disclosure and have limited its distribution to selected officials.

Issue Date: April 16, 2010
Audit Memorandum No. 2010-BO-0801

Title: HUD Region 1 Community Planning and Development Offices Monitoring of Homelessness Prevention and Rapid Re-Housing Program Grants Funded Under the American Recovery and Reinvestment Act Was Appropriately Targeted to Higher Risk Grantees

We reviewed the U.S. Department of Housing and Urban Development's (HUD) Office of Community Planning and Development's (CPD) risk assessment process. We initiated the review as part of the activities in our fiscal year 2010 annual audit plan. Our objective was to determine whether CPD had established and properly implemented a risk assessment process that used appropriate measures to determine risk and identify grantees for monitoring.

We found that CPD had established and implemented a risk assessment process that used relevant assessment factors to determine risk and identify grantees for monitoring. We identified and reviewed risk assessment factors in existence, evaluated whether they were adequate, and considered additional factors required under the American Recovery and Reinvestment Act 0f 2009. The risk assessment factors in place were adequate to identify grantees for appropriate monitoring. Additionally, the risk analyses prepared annually were used to select grantees for later monitoring.

There are no recommendations made in this report since no reportable deficiencies were identified.

Issue Date: April 16, 2010
Audit Report No. 2010-KC-0001

Title: HUD Took Appropriate Steps to Improve Its Controls over Net Restricted Assets but Overpaid Section 8 Set-Aside Funds to One Public Housing Agency

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Public Housing and Voucher Programs to determine whether HUD reasonably ensured that public housing agencies properly managed their housing choice voucher net restricted assets and to determine whether HUD appropriately awarded 2009 set-aside fund awards for unforeseen circumstances and higher than average leasing. We found that HUD had already discovered it did not have accurate information about public housing agency net restricted assets and was taking appropriate steps to improve its controls. We also found that HUD did not ensure about $18,000 in set-aside funds was used for its intended purpose. HUD immediately resolved this discrepancy.

We recommend that the Office of Public Housing and Voucher programs (1) rectify the discrepancy for the award overpayment, (2) check the accuracy of other unforeseen circumstance awards made for similar tenant income reductions and rectify any discrepancies, and (3) correct the process for future similar awards.

HUD agreed with the recommendations and has already addressed them. Therefore, we will close the recommendations upon issuance of the report.

Issue Date: April 13, 2010
Audit Report No. 2010-FW-0002

Title: HUD's Recapture and Reallocation Plan for Recovery Act Public Housing Capital Fund Grants Had Weaknesses

We audited the U. S. Department of Housing and Urban Development's (HUD) compliance with obligation, recapture, and reallocation requirements for the American Recovery and Reinvestment Act of 2009 (Recovery Act) Public Housing Capital Fund program. Specifically, its plans to recapture unobligated Recovery Act Public Housing Capital Fund formula grants by the March 17, 2010 obligation deadline and to reallocate the recaptured funds. HUD's plan was a generalized description of the process it would undertake to recapture and reallocate formula grant funds not obligated by the deadline. HUD should improve its plan by revising it to include more detailed procedures for accomplishing HUD's goals and a timeline for completing them and use this plan for future recapture and reallocation events.

Issue Date: April 13, 2010
Audit Report No. 2010-CH-0002

Title: The Office of Affordable Housing Programs Oversight of Resale and Recapture Provisions for HOME Investment Partnerships Program-Assisted Homeownership Projects Was Inadequate

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Affordable Housing Programs (Office) oversight of resale and recapture provisions for HOME Investment Partnerships Program (Program)-assisted homeownership projects (project). The audit was part of the activities in our fiscal year 2009 annual audit plan to contribute to improving HUD's execution of and accountability for its fiscal responsibilities and our strategic plan to help HUD resolve its major management challenges. Our objective was to determine whether HUD's Office had adequate oversight of participating jurisdictions use of resale and recapture provisions to enforce HUD's affordability requirements for Program-assisted projects.

HUD's Office did not ensure that participating jurisdictions complied with HUD's requirements in their use of resale and recapture provisions to enforce HUD's affordability requirements for Program-assisted projects. Of the 40 projects selected for review, 27 participating jurisdictions did not include appropriate resale and/or recapture provisions in their 29 consolidated and/or action plans that were in effect at the time the participating jurisdictions set up 32 projects in HUD's Integrated Disbursement and Information System. Further, 18 participating jurisdictions did not ensure that appropriate resale or recapture provisions were implemented for 21 projects. In addition, three participating jurisdictions did not ensure that HUD's interest was sufficiently protected in three projects for which more than $43,000 in Program funds was used for home-buyer assistance.

We recommend that HUD's Deputy Assistant Secretary for Grant Programs require the Office to

Ensure that the State of New York and Cobb County, GA, Consortium, reimburse their Programs $30,000 and $9,947, respectively, for the two projects for which they did not ensure that they met HUD's affordability requirements;
Ensure that the State of Montana places a deed restriction, land covenant, affidavit, and/or lien on a property to ensure that it would recoup all or a portion of the $3,139 in Program funds used for a project if the housing does not continue to be the principal residence of the household for the duration of the affordability period or reimburse its Program $3,139; and
Implement adequate procedures and controls to address the finding cited in this audit report.

Issue Date: March 29, 2010
Audit Report No. 2010-CH-0001

Title: The Office of Block Grant Assistance Lacked Adequate Controls Over the Inclusion of Special Conditions in Neighborhood Stabilization Program Grant Agreements

The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited HUD's Office of Block Grant Assistance's (Office) controls over special conditions in Neighborhood Stabilization Program grant agreements under Title III of the Housing and Economic Recovery Act of 2008 (Act) as amended. The audit was part of the activities in our fiscal year 2010 annual audit plan. Our objective was to determine whether HUD's Office ensured that HUD's Office of Community Planning and Development field offices (field offices) were consistent in their consideration and inclusion of special conditions in Neighborhood Stabilization Program grant agreements with high-risk grantees.

HUD's field offices used different procedures for including special conditions in Neighborhood Stabilization Program grant agreements under the Act. HUD's Office did not ensure that the field offices were consistent in their consideration and inclusion of special conditions in Neighborhood Stabilization Program grant agreements with high-risk grantees.

We recommend that HUD's Deputy Assistant Secretary for Grant Programs require HUD's Office to determine whether Neighborhood Stabilization Program grantees under the Act are high risk by considering grantees past performance or other serious actions in their HOME Investment Partnerships (HOME), Emergency Shelter Grant, and Supportive Housing programs. If the Neighborhood Stabilization Program grantees are high risk, they should be required to develop and implement management plans for their Neighborhood Stabilization Programs that will include but not be limited to describing how unresolved HOME, Emergency Shelter Grant, and/or Supportive Housing program performance issues were resolved or are being resolved and explain whether the issues will impact the administration of their Neighborhood Stabilization Programs.

Issue Date: March 18, 2010
Audit Report No. 2010-BO-0002

Title: HUD's Office of Community Planning and Development Had Established and Implemented an Appropriate Risk Assessment Process

There are no recommendations made in this report since no reportable deficiencies were identified.

Issue Date: February 26, 2010
Audit Report No. 2010-PH-0001

Title: HUD's Philadelphia, PA, Homeownership Center Did Not Always Ensure That Required Background Investigations Were Completed for Its Contracted Employees

In accordance with our annual audit plan and due to concerns regarding the U.S. Department of Housing and Urban Development's (HUD) capacity to handle the increasing demand for loans insured by the Federal Housing Administration (FHA), we initiated an audit of HUD's Philadelphia, PA, Homeownership Center (Center). This is the first of two audit reports that we plan to issue on the Center's capacity to process current demand for FHA loans. The audit objective addressed in this report was to determine whether the Center processed FHA loan applications in accordance with applicable policies and procedures and ensured that required background investigations were completed for its contracted employees that performed functions associated with FHA loans.

The Center generally processed FHA loans in accordance with applicable policies and procedures. However, it did not always ensure that required background investigations were completed for its contracted employees that were responsible for processing FHA loan applications and monitoring the quality of lenders underwriting. The Center had 29 contracted employees that were responsible for performing functions associated with FHA loans. Of the 29 contracted employees, 16, or 55 percent, had not been through minimum background investigations required by contract clauses and HUD's policies on personnel security/suitability. HUD spent more than $5.4 million on services from contracted employees that may not have been eligible to access its computer systems and other information sources containing sensitive personally identifiable information.

We recommend that the Deputy Assistant Secretary for Single Family Housing direct the Center to (1) initiate and follow up on the required minimum background investigations for its contracted employees that have not been investigated to justify more than $5.4 million spent on the related contracts and (2) develop and implement controls to ensure that its contracted employees comply with contract terms and applicable HUD security policies.

Issue Date: February 18, 2010
Audit Report No. 2010-BO-0001

Title: HUD Was Not Effective in Recovering the New London Housing Authority From Troubled Status and Did Not Take the Required Regulatory or Statutory Action

We initiated the audit of the U.S. Department of Housing and Urban Development's (HUD) efforts to recover the City of New London, CT, Housing Authority (Authority) due to its longstanding troubled status. The Authority has had significant management deficiencies for more than 10 years, and HUD identified the Authority as overall troubled in May of 2004. Our objective for this audit was to evaluate HUD's effectiveness in identifying and helping to correct deficiencies at the Authority.

HUD had detected significant deficiencies but had not been effective in recovering the Authority from its longstanding troubled status. Although HUD provided extensive technical and monetary assistance and entered into a number of binding memorandums of agreement requiring improvement, the Authority's condition continued to decline, it could not meet its debt obligations, and it remained troubled. The Authority has been troubled primarily due to the poor management of its Federal and State housing programs. In addition, its Federal housing projects did not meet HUD's minimum housing standards.

HUD failed to take action in a timely manner when the Authority failed to make substantial progress in correcting its deficiencies. As a result, the Authority's financial condition declined, creditors were not paid, liens were placed on its housing projects, and its rent receipts may be placed in receivership unless more than $1.7 million in unpaid utility bills is paid by January 2010. In addition, the Authority improperly used more than $524,000 in Federal funds for State programs, $105,000 for unsupported payments in lieu of taxes, $99,000 in Federal capital funds for State security patrols, and $97,000 for unsupported and unreasonable renovations and painting.

We recommend that the Director of HUD's Boston Office of Public Housing ensure that the Authority (1) establishes and implements a financial/business plan to pay its creditors, avoid having a local receivership lien placed against its rents , and remove liens; (2) enters into an agreement to repay more than $900,000 in water and sewer bills; (3) properly accounts for its revolving account, stops using Federal funds for State programs, and repays its Federal programs an estimated $524,879; (4) repays or supports $97,106 paid for unreasonable and unsupported contract maintenance costs; and (5) repays or supports $99,939 in Federal funds paid for State security patrols.

We recommend that the Director of the Office of Field Operations (1) implements a formal process to report troubled housing agencies to the Assistant Secretary for Public Housing for a determination of the corrective actions required by HUD regulations and Federal statutes and (2) notifies the Deputy Assistant Secretary for Public Housing that the Authority is in danger of having a local receivership lien placed against its rents.

We recommend that the Director of the Departmental Enforcement Center pursue all administrative and/or civil monetary penalties for the regulatory agreement violations disclosed in this finding. In implementing this recommendation, the Deputy Director should consider all of the issues discussed in this report and audit report 2009-BO-1010.

In addition, the Authority has exceeded the maximum statutory recovery period, and our prior audit report number 2009-BO-1010, issued August 7, 2009, recommended that the Deputy Assistant Secretary for Field Operations inform the Assistant Secretary for Public and Indian Housing of the Authority's inability to improve its score or meet the goals of the memorandum of agreement with HUD and determine the statutory remedies required under section 6(j) of the U.S. Housing Act of 1937. Therefore, the findings in this report should also be considered when implementing that recommendation.

Issue Date: January 25, 2010
Audit Memorandum No. 2010-LA-0803

Title: Review Results for Hotline Case Number HL-09-0756 Kaibab Band of Painte Indians, Pipe Spring, AZ

In response to an April 3, 2009, hotline request from the Kaibab Band of Paiute Indians, Pipe Spring, AZ (Kaibab), the U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General reviewed HUD's evaluation of Kaibab's application for an Indian Community Development Block Grant (Indian Block Grant) under HUD's 2008 notice of funding availability. The review objective was to evaluate the merits of the complainant's allegation that the HUD Southwest Office of Native American Programs (Southwest Office) treated Kaibab's application prejudicially without providing for a fair review.

Our review did not find evidence that the Southwest Office treated Kaibab's 2008 Indian Block Grant economic development grant application with prejudice or failed to provide a fair review.

The grant application review procedures as related to project-specific threshold screening were performed in compliance with program requirements. However, we noted that the review processes were not standardized in a way that easily precluded any perception of unfairness. Specifically, the Southwest Office assigned applications to grants management specialists without regard to ensuring impartial treatment in appearance and in fact. Although economic development proposals tended to be uncommon and more complicated than other Indian Block Grant proposals, application reviewers did not receive training or guidance regarding the evaluation of such proposals. Finally, the Southwest Office did not require reviewers to clearly and thoroughly document the reasons for their determination that an application failed to meet threshold requirements and, therefore, would not be rated or ranked.
We determined that the Southwest Office reviewers determinations regarding specific threshold criteria were generally defensible and made in good faith. We agreed that some of the concerns raised by the reviewers regarding criteria for financial feasibility, reasonable chance of success, and public benefit were defensible. We also identified significant weaknesses in the proposals that were not directly addressed by the reviewers.
We concluded that the Southwest Office's overall decision that Kaibab's application did not meet all threshold requirements in 2008 (and in 2007) was within the parameters of applicable program criteria. We noted that the Indian Block Grant project-specific threshold criteria and related guidance were nonspecific regarding key requirements for economic development proposals. Accordingly, reviewers had substantial discretion regarding their approach to evaluating financial feasibility for the threshold screening. Further, economic development proposals represented less than 7 percent (in 2008) of the Indian Block Grant applications to the Southwest Office, and the projects were generally perceived to entail greater risk of failure to succeed in the long run. As a result, all economic development proposals not just the Kaibab proposal faced similar barriers to approval and funding.

We recommend that the Office of Native American Programs Director of Grants Management require the Southwest Office Administrator to establish a consistent process for assignment of grant applications to reviewers, develop standards to ensure that written review comments are clear and complete, and develop a consistent evaluation approach for certain nonspecific project eligibility criteria.

Issue Date: January 15, 2010
Audit Memorandum No. 2010-FW-0801

Title: HUD Guidance on American Recovery and Reinvestment Act Capital Fund Physical Needs Assessment

We reviewed the U. S. Department of Housing and Urban Development's (HUD's) guidance on using American Recovery and Reinvestment Act of 2009 (Recovery Act) capital funding for physical needs assessments. Our objective was to determine whether HUD's guidance to grantees on using Recovery Act capital funds for physical needs assessments was sufficient to ensure grantees had the information needed to avoid missing the grant obligation deadline of March 17, 2010. HUD took actions in a timely manner to address concerns raised during the review. We made no further recommendations.

Issue Date: January 12, 2010
Audit Memorandum No. 2010-PH-0801

Title: HUD's Regulatory Agreement with the Yorkville Cooperative Does Not Protect HUD's Interest

We performed this review at the request of the U.S. Department of Housing and Urban Development's (HUD) Multifamily Program Center, Richmond field office, due to concerns regarding the appropriateness of HUD's current regulatory agreement with the Yorkville Cooperative (Cooperative). Our objective was to determine if HUD entered into the appropriate regulatory agreement with the Cooperative for its Section 221(d)(3) program.

HUD and the Cooperative did not enter into an appropriate regulatory agreement for participants of the Section 221(d)(3) program. The regulatory agreement executed in 1979 was intended for entities participating in the Multifamily Insurance program but it did not include specific regulatory requirements needed for entities participating in the program as cooperatives. The agreement failed to include necessary requirements pertaining to the general operating reserve account.

We recommend that the Director of HUD's Multifamily Program Center, Richmond field office enter into an amended regulatory agreement with the Cooperative. The regulatory agreement should include a rider pertaining to the general operating reserve. This will ensure that the $989,521 in reserve funds will only be used for eligible expenses.

Issue Date: January 11, 2010
Audit Report No. 2010-HA-0001

Title: HUD's Office of Healthy Homes and Lead Hazard Control Awarded Grants to Ineligible Applicants

We audited the U.S. Department of Housing and Urban Development's Office of Healthy Homes and Lead Hazard Control's (OHHLHC) selection procedures used to award American Recovery and Reinvestment Act of 2009 (Recovery Act) grants. Our objective was to determine whether OHHLHC awarded (1) Recovery Act funds in accordance with the selection criteria specified in the fiscal year 2008 notices of funding availability (notices) and the Recovery Act and (2) fiscal year 2008 funds in accordance with the selection criteria.

We determined that OHHLHC did not have adequate controls to ensure that only qualified applicants were selected to receive grant funds. As a result, OHHLHC improperly awarded $1.9 million in Recovery Act funds to the City of Greenville, NC (Greenville), and $874,821 to Healthy Homes Resources. In addition, OHHLHC awarded $3 million in fiscal year 2008 funds to the City of Cincinnati, OH (Cincinnati).

We recommend that the Director of OHHLHC rescind the $2.8 million in Recovery Act funds that was improperly awarded to Greenville and Healthy Homes Resources, ensure that the selection procedures are followed, and take appropriate actions against employees. We also recommend that the Director of OHHLHC rescind the $3 million in fiscal year 2008 funding that was awarded to Cincinnati, ensure that the application review panels follow threshold review requirements when determining eligibility, and take appropriate action against employees who circumvented the regulations.

Issue Date: December 15, 2009
Audit Memorandum No. 2010-AO-0801

Title: HUD Needs to Ensure That the Housing Authority of New Orleans Strengthens Its Capacity to Adequately Administer Recovery Funding

As part of the Housing and Urban Development (HUD) Office of Inspector General's obligation to ensure accountability and transparency in use of the American Recovery and Reinvestment Act of 2009 (ARRA) funds, we performed a review to assess the Housing Authority of New Orleans' (Authority) capacity to administer $34.5 million in ARRA funding. Our objective was to evaluate the Authority's capacity and risks in the following areas: basic internal controls, financial operations, procurement, and outputs/outcomes.

The Authority had capacity deficiencies related to internal controls, financial operations, procurement, and inventory. Specifically, the Authority lacked (1) internal control capacity related to staffing levels and segregation of duties; (2) financial capacity related to its accounts payable procedures, financial policies, and independent public accountant reviews; and (3) procurement capacity, as the Authority did not always comply with the procurement policy and the policy was not always clear. The Authority generally ensured that its outputs and outcomes related to rehabilitation contracts were adequate. However, it did not maintain an adequate inventory listing of items removed from some of the rehabilitated projects. Due to capacity limitations, the Authority will encounter difficulty in both obligating and expending the $34.5 million in ARRA funds within the statutory time limits. While the Authority had taken measures to develop policies and procedures for obligating and expending the ARRA funds, the Authority's prior performance continues to raise serious concerns about the Authority's ability to comply with the statutory requirements and safeguard these limited resources. Therefore, HUD, as the Authority's administrative receiver, must make a realistic determination on the Authority's ongoing capacity limitations.

We recommended that HUD's Deputy Assistant Secretary require the Authority to (1) support or repay unsupported disbursements totaling $321,462; (2) maintain adequate staffing levels in its Finance, and Contracting and Compliance Departments, based upon the organizational structure. In addition, as related to the Finance Department, the Authority should obtain qualified staff to perform the accounts receivable function; (3) amend its finance policies to specify approving officials, appropriate staff titles, and required approval forms and procedures. In addition, the Authority should incorporate in its finance policy procedures related to expenditure of prepaid items and ensuring that independent public accountant audit findings are addressed in a timely manner; (4) consider cross-training employees in the Finance Department and rotate respective roles periodically in an effort to prevent collusion; (5) amend its procurement policy to comply with 24 CFR 85.36; (6) consider labeling all asset inventory items obtained for rehabilitation before placing items into the inventory to ensure that its assets are safeguarded; adequately accounted for; and protected from loss, damage, and theft; (7) obtain a contractor to oversee the contracting, and the progress and completion of the work activities; and (8) contract with an accounting firm to maintain a separate accounting and biweekly reporting of ARRA funds expended on ARRA activities. We also recommended that HUD's Deputy Assistant Secretary request that the Assistant Secretary for Public and Indian Housing immediately deobligate all or some of the Authority's ARRA funds and reallocate the funds to housing authorities that can utilize the funds, if the lack of capacity continues and indicates the Authority's inability to obligate or complete the planned work by the statutory deadline.

Issue Date: December 11, 2009
Audit Report No.: 2010-DP-0001

Title: Review of Ginnie Mae's Controls over Its Information Technology Resources (Redacted Report)

We completed an audit of the Government National Mortgage Association's (Ginnie Mae) controls over its information technology (IT) resources. We assessed whether Ginnie Mae's management of its information systems complied with the U.S. Department of Housing and Urban Development's (HUD) IT policies and federal information system security requirements. The audit was performed in support of our annual financial statement audit of Ginnie Mae and our annual evaluation of HUD's information system security program within the context of the Federal Information Security Management Act (FISMA). OIG has determined that the full contents of this report would not be appropriate for public disclosure and is releasing this redacted version to the public.

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

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

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: November 16, 2009
Audit Report No. 2010-FO-0003

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

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

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

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

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

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

Issue Date: November 12, 2009
Audit Report No. 2010-LA-0001

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

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

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

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

Issue Date: November 10, 2009
Audit Report No.: 2010-FW-0001

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

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

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

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

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

Issue Date: November 5, 2009
Audit Report No.: 2010-FO-0001

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

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

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

Issue Date: October 30, 2009
Audit Memorandum No.: 2010-DP-0801

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

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

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

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

Issue Date: October 26, 2009
Audit Memorandum No.: 2010-LA-0802

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

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

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

Issue Date: October 1, 2009
Audit Report No.: 2010-LA-0801

Title: HUD Needs to Make Financial Determination on Whether San Diego Square Subleased Property is HUD Insured Under Section 202 of the Housing Act of 1959, San Diego, California

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

Fiscal Year 2009

Issue Date: September 30, 2009
Audit Report No.: 2009-NY-0803

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

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

Issue Date: September 30, 2009
Audit Report No.: 2009-DP-0008

Title: Report on the Review of Recovery Act Management and Reporting System

The HUD Inspector General Office the management procedures, practices, and controls related to the Recovery Act Management and Reporting System (RAMPS) to assess compliance with reporting requirements under the American Recovery and Reinvestment Act (Recovery Act). The audit found that HUD had taken actions to comply with the reporting requirements under the Recovery Act. However, HUD's effort to implement procedures, practices, and controls related to RAMPS did not fully meet the Recovery Act's National Environmental Policy Act (NEPA) reporting requirements to ensure that NEPA data were reported to the public in a timely and accurate manner, nor did HUD complete required security and privacy documents before or during the early phase of system development. The report recommends the HUD Chief Information Officer ensure that system owners develop the system security plan and risk assessment early in the development process and that system owners complete a privacy impact assessment for a new system before placing it into development and production.

Issue Date: September 30, 2009
Audit Report No.: 2009-DP-0007

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

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

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

Issue Date: September 30, 2009
Audit Report No.: 2009-CH-0003

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

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

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

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

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

Issue Date: September 30, 2009
Audit Report No.: 2009-SE-0004

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

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

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

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

Issue Date: September 28, 2009
Audit Memorandum No.: 2009-AT-0001

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

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

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

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

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

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

Issue Date: September 28, 2009
Audit Memorandum No.: 2009-HA-0001

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

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

Issue Date: September 28, 2009
Audit Memorandum No.: 2009-HA-0801

Title: Evaluation of the Front End Risk Assessment for the Office of Healthy Homes and Lead Hazard Control Recovery Act Funds

We reviewed the front-end risk assessment (assessment) for the Office of Healthy Homes and Lead Hazard Control (OHHLHC) for the U.S. Department of Housing and Urban Development (HUD). The Recovery Act appropriated $100 million to the lead hazard control program. Our review of the assessment for OHHLHC determined that while OHHLHC generally complied with the Recovery Act, HUD's Streamlined FERA Process and the Departmental Management Control Program handbook, two OHHLHC-specific guides, the Desk Guide and the Program Guide, had not been updated as stated in the final assessment. In addition, we identified two issues regarding transparency that should be addressed to make information available to the public.

We recommend that OHHLHC: (1) Update the Desk Guide and Program Guide to include Recovery Act provisions as presented in the final assessment for OHHLHC, dated June 23, 2009; (2) Establish follow-up procedures to ensure that the selection results are published in the Federal Register in a timely manner; and (3) Ensure that the transparency requirement of the Recovery Act is properly implemented so that Web hyperlinks are properly maintained and available to the public. OHHLHC took action to implement the three recommendations included in the draft memorandum. As such, the recommendations will be closed upon issuance of this memorandum.

Issue Date: September 25, 2009
Audit Memorandum No.: 2009-FO-0006

Title: Review of American Recovery and Reinvestment Act Formula Allocations

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

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

There were no recommendations made in this report.

Issue Date: September 24, 2009
Audit Memorandum No.: 2009-AT-0801

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

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

Issue Date: September 24, 2009
Audit Memorandum No.: 2009-FW-0802

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

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

Issue Date: September 23, 2009
Audit Memorandum No.: 2009-PH-0802

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

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

Issue Date: September 14, 2009
Audit Memorandum No.: 2009-CH-0801

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

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

Issue Date: September 1, 2009
Audit Report No.: 2009-NY-0002

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

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

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

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

Issue Date: September 1, 2009
Audit Report No.: 2009-SE-0003

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

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

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

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

Issue Date: August 28, 2009
Audit Report No.: 2009-CH-0002

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

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

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

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

Issue Date: August 17, 2009
Audit Memorandum No.: 2009-BO-0801

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

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

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

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

Issue Date: August 14, 2009
Audit Report No.: 2009-KC-0001

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

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

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

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

Issue Date: August 7, 2009
Audit Memorandum No.: 2009-LA-0802

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

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

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

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

Issue Date: July 24, 2009
Audit Memorandum No.: 2009-NY-0802

Title: Significant Flaws Identified at the Lackawanna Municipal Housing Authority May Affects Its Capacity to Administer American Recovery and Reinvestment Act Funds

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

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

Issue Date: July 13, 2009
Audit Report No.: 2009-LA-0001

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

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

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

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

Issue Date: July 9, 2009
Audit Report No.: 2009-PH-0002

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

We audited the U.S. Department of Housing and Urban Development's (HUD) monitoring of its Community Development Block Grant (CDBG) program grantees under the jurisdiction of the Philadelphia, Pennsylvania, and Baltimore, Maryland, Community Planning and Development (CPD) field offices as part of our annual audit plan. The audit objective was to determine whether those offices adequately monitored their CDBG program grantees to ensure that they used their grant funds to assist low- and moderate-income families through eligible activities according to HUD requirements. The Philadelphia and Baltimore CPD field offices did not adequately document their monitoring of CDBG program grantees. Specifically, the field offices did not always maintain documentation to demonstrate that their monitoring was complete and did not always notify grantees of the findings and concerns identified during on-site monitoring within the required time limit.

We recommended that the Directors of HUD's Philadelphia and Baltimore CPD field offices reemphasize to their staffs the importance of following established monitoring procedures, specifically to ensure that all correspondence, documentation, and work papers relating to the monitoring and conclusions are maintained in the official monitoring files; monitoring officials use the required monitoring exhibits; monitoring officials answer all of the questions and fill in all of the text boxes in the monitoring exhibits; and staffs prepare and send notification of the monitoring results to the grantees within the required 45-day time limit. In addition, we recommended that the Directors develop and implement a written quality assurance procedure and/or mechanism to ensure that monitoring conclusions are appropriately supported by complete documentation and that monitoring letters are submitted to grantees within the 45-day requirement.

Issue Date: June 25, 2009
Audit Report No.: 2009-FW-0001

Title: HUD's Disaster Recovery Grant Reporting System Can Collect the Basic Information Needed to Monitor the Neighborhood Stabilization Program (Amended Report)

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

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

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

Issue Date: June 19, 2009
Audit Report No.: 2009-PH-0801

Title: Corrective Action Verification Review, Upfront Grant for Ridgecrest Heights Apartments, CEMI-Ridgecrest, Inc., Washington, DC

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

HUD failed to adequately follow the procedures it agreed to in its close-out memorandum with the Office of Inspector General. Since HUD did not ensure the grantee submitted the proper documentation to ensure repayment of the sales proceeds, we estimated a preliminary amount of excess sales proceeds due to HUD to be $780,326, subject to additional verification. HUD needs to verify the amount of the sales proceeds and determine whether any funds remain in the project's trust fund, and then ensure those funds are returned to HUD as required by the grant agreement.

Based on the results of our verification, we recommend that HUD's Deputy Assistant Secretary of Multifamily Housing Programs verify the final amount of sales proceeds, determine if any amounts should be returned to HUD, and ensure such amounts are repaid to HUD under the terms of the grant agreement. We also recommend that after 10 years from the date of final development has expired, determine whether any funds remain in the project's trust fund, and ensure such amounts are repaid to HUD under the terms of the grant agreement.

Issue Date: June 16, 2009
Audit Report No.: 2009-LA-0801

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

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

Issue Date: June 12, 2009
Audit Report No.: 2009-AO-1801

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

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

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

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

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

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

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

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

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

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

Issue Date: May 28, 2009
Audit Report No.: 2009-FW-0801

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

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

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

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

Issue Date:May 22, 2009
Audit Report No.: 2009-CH-0001

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

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

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

Since we did not identify any deficiencies, there are no recommendations in this audit report.

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

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

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

Issue Date: April 15, 2009
Audit Report No.: 2009-FO-0004

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

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

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

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

Issue Date: April 8, 2009
Audit Report No.: 2009-AO-0003

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

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

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

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

Issue Date: February 6, 2009
Audit Report No.: 2009-SE-0002

Title: NAHASDA Program Income from 1937 Act Properties

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

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

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

Issue Date: January 29, 2009
Audit Report No.: 2009-AO-0002

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

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

HUD's receiver did not ensure that the Authority

Correctly supported, expensed, or reported its expensed fungible funds in accordance with HUD requirements, resulting in at least $3.5 million in unsupported expenses and $2.3 million in ineligible
expenses that were unreported in its annual progress report and at least $1.4 million in additional unsupported expenses that were reported in the report;
Monitored and/or paid two of its contractors in accordance with contract terms and the Authority's procurement policy, resulting in $97,193 in ineligible costs and $1,153 in unsupported costs paid
on one of the contracts; and
Supported 10 of 20 accounts payable disbursements in accordance with the Authority's financial policy, resulting in at least $15,000 in unsupported costs for those 10 disbursements.

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

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

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

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

Issue Date: December 12, 2008
Audit Report No.: 2009-AO-0001

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

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

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

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

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

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

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

Issue Date: December 9, 2008
Audit Report No.: 2009-PH-0001

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

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

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

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

Issue Date: December 8, 2008
Audit Report No.: 2009-SE-0801

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

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

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

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

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

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

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

Issue Date: November 20, 2008
Audit Report No.: 2009-DP-0001

Title: Review of Single-Family Partial Claims Collection Process

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

Issue Date: November 14, 2008
Audit Report No.: 2009-FO-0003

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

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

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

Issue Date: November 7, 2008
Audit Report No.: 2009-FO-0002

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

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

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

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

Issue Date: November 7, 2008
Audit Report No.: 2009-FO-0001

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

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

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

Issue Date: October 16, 2008
Audit Report No.: 2009-NY-0001

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

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

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

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

Fiscal Year 2008

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

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

Issue Date: September 30, 2008
Audit Report No.: 2008-AT-0803

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

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

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

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

Issue Date: September 30, 2008
Audit Report No.: 2008-CH-0003

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

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

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

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

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

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

Issue Date: September 29, 2008
Audit Report No.: 2008-KC-0007

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

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

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

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

Issue Date: September 29, 2008
Audit Report No.: 2008-CH-0002

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

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

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

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

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

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

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

Issue Date: September 29, 2008
Audit Report No.: 2008-CH-0001

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

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

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

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

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

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

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

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

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

Issue Date: September 8, 2008
Audit Report No.: 2008-KC-0006

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

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

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

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

Issue Date: September 4, 2008
Audit Report No.: 2008-LA-0003

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

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

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

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

Issue Date: August 27, 2008
Audit Report No.: 2008-NY-0002

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

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

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

Issue Date: July 29, 2008
Audit Report No.: 2008-FW-0001

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

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

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

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

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

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

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

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

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

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

Issue Date: July 15, 2008
Audit Report No.: 2008-KC-0005

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

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

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

Issue Date: June 24, 2008
Audit Report No.: 2008-KC-0004

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

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

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

Issue Date: June 12, 2008
Audit Report No.: 2008-DP-0004

Title: Review of Selected FHA Major Applications' Information Security Controls

We audited the Federal Housing Administration's (FHA) management of its information technology resources and compliance with U.S. Department of Housing and Urban Development (HUD) and other federal information security requirements. Our overall objective was to determine whether FHA effectively managed security controls relating to its information technology resources. This audit supported our financial statement audits of FHA and HUD as well as our annual Federal Information Security Management Act review. We found that FHA did not (1) fully implement required security controls related to personnel security, user access, and audit log management for the Single Family Insurance System - Claims Subsystem; (2) define or implement adequate security controls over its business partners that develop, store, and process HUD data; and (3) have assurance that mandatory security controls had been implemented and follow the federal information security framework. We also found that the HUD Office of the Chief Information Officer did not follow its own policy on performing security impact assessments when significant changes were made to a system. We recommend that FHA and HUD incorporate the federal information security program framework into their management processes so that security assessments, continuous monitoring, personnel security, and appropriate access to systems and data are assured.

Issue Date: May 21, 2008
Audit Report No.: 2008-BO-0002

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

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

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

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

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

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

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

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

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

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

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

Issue Date: May 12, 2008
Audit Report No.: 2008-AT-0802

Title: Corrective Action Verification Opelika Housing Authority Public Housing Programs

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

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

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

Issue Date: April 24, 2008
Audit Report No.: 2008-AT-0002

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

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

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

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

Issue Date: April 14, 2008
Audit Report No.: 2008-KC-0003

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

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

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

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

Issue Date: March 28, 2008
Audit Report No.: 2008-AO-0801

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

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

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

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

Issue Date: March 26, 2008
Audit Report No.: 2008-PH-0001

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

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

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

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

Issue Date: March 24, 2008
Audit Report No.: 2008-KC-0002

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

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

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

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

Issue Date: March 4, 2008
Audit Report No.: 2008-DP-0003

Title: Fiscal Year 2007 Review of Information Systems Controls in Support of the Financial Statements Audit

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

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

Issue Date: March 4, 2008
Audit Report No.: 2008-LA-0002

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

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

Specifically, HUD

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

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

Issue Date: February 14, 2008
Audit Report No.: 2008-BO-0001

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

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

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

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

Issue Date: February 11, 2008
Audit Report No.: 2008-AT-0801

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

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

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

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

Issue Date: January 14, 2008
Audit Report No.: 2008-KC-0001

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

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

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

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

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

Issue Date: January 10, 2008
Audit Report No.: 2008-AT-0001

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

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

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

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

Issue Date: December 31, 2007
Audit Report No.: 2008-NY-0001

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

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

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

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

Issue Date: December 4, 2007
Audit Report No.: 2008-AO-0001

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

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

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

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

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

Issue Date: November 14, 2007
Audit Report No.: 2008-FO-0003

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

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

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

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

Issue Date: November 8, 2007
Audit Report No.: 2008-FO-0002

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

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

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

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

Issue Date: November 7, 2007
Audit Report No.: 2008-FO-0001

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

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

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

Issue Date: November 5, 2007
Audit Report No.: 2008-LA-0001

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

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

Issue Date: October 31, 2007
Audit Report No.: 2008-DP-0002

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

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

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

Issue Date: October 23, 2007
Audit Memorandum No.: 2008-NY-0801

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

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

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

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

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

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

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

Fiscal Year 2007

Issue Date: September 29, 2007
Audit Report No.: 2007-CH-0001

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

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

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

Issue Date: September 28, 2007
Audit Report No.: 2007-FW-0001

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

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

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

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

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

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 housingg 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: June 7, 2007
Audit Report No.: 2007-SE-0001

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

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

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

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

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

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

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

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

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

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,c 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

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

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

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

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

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

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.