Provide adequate documentation to support that the $2,588,362 in CDBG-DR funds for three unsupported project and program management services expenditures cited in this report was spent for supported, necessary, and reasonable costs. Any amount for which adequate support cannot be provided should be repaid from non-Federal funds.

Update its procurement policy to clearly define the process, which includes timing and the procurement types, for conducting an independent cost estimate and a price analysis.

Provide training to State staff to ensure that it understands and follows (1) requirements to maintain adequate documentation to support that program disbursements are eligible and reasonable and (2) procurement requirements, including independent cost estimates, cost analyses, proposal scoring, and the timely checking of the SAM data for contractors’ eligibility.

We recommend that the Director of HUD’s Newark Office of Public Housing make a determination regarding outstanding agreement income, including whether those unspent funds should be returned to the public housing agencies, thereby putting up to $697,912 to better use, including $478,165 related to Asbury Park and $219,747 related to Red Bank.

We recommend that the Director of HUD’s Newark Office of Public Housing provide technical assistance to Long Branch and require updates to its procedures to ensure that it properly classifies income received under any future agreements or activities.

We recommend that the Director of HUD’s Newark Office of Public Housing require Long Branch to prepare and provide support for a reasonable estimate of the amount of employee time used to perform services for Asbury Park and Red Bank and the amount of Long Branch program funds used to pay for that time. This estimate should include all employees known or believed to have provided services under the agreements based on language in the agreements, incentive payments, after-the-fact documentation provided, and any other applicable knowledge or documentation, which would show that the employees performed work under the agreements.

We recommend that the Director of HUD’s Newark Office of Public Housing require Long Branch to reimburse Long Branch’s program from non-Federal funds for any Long Branch program funds used for payroll expenses related to services provided to Asbury Park and Red Bank as established in recommendation 2A, estimated to be $1,014,660.

We recommend that the Director of HUD’s Newark Office of Public Housing require Long Branch to prepare and provide support to show the reasonableness and eligibility of the $1,583,652 in employee incentive payments related to services performed for Asbury Park and Red Bank, which was paid from agreement income, or reimburse its program from non-Federal funds for any amount it cannot support.

We recommend that the Director of HUD’s Newark Office of Public Housing require Long Branch to implement adequate controls to ensure compliance with applicable cost principle requirements for employees, including those covering compensation for personal services, such as wages, salaries, and incentive payments, at 2 CFR 200.430. Records should reasonably reflect the total activity for which Long Branch’s employees are compensated by the non-Federal entity and support the distribution of compensation among specific activities and cost objectives.

Consider grant recipients’ feedback on challenges with (1) capacity, (2) multiple other sources of funding, and (3) subrecipient monitoring as part of CPD’s risk assessments.

Collaborate with the Deputy Chief Financial Officer to work with grantees in identifying where improper and unknown payments could occur in the CPD-HIM program throughout the payment cycle, to include the risks associated with subgrantee billing, and document this analysis.

Collaborate with the Deputy Chief Financial Officer and use the analysis developed in 3A to ensure that HUD’s improper and unknown payment testing procedures are (1) designed to test the full payment cycle and (2) include the review of documentation that supports that final beneficiaries were eligible, goods and services were received, and payments went to the correct final beneficiaries and were for the correct amount.

Work with the Office of Community Planning and Development’s Chief Risk Officer and grantees to better identify the risks of improper and unknown payments throughout the payment cycle, to include the risks associated with grantees and subgrantees, and consider these risks when performing the CDBG and Homeless Assistance Grant risk assessments.

Work with the Deputy Chief Financial Officer to develop and design a process to ensure that each attribute evaluated during the PIIA risk assessment is evaluated at all levels of the full payment cycle.

Develop and implement a plan that ensures the continuity of adequate internal controls over the PIH-TBRA program to detect and prevent improper payments, which can be implemented in a virtual environment. This plan should include how HUD can review tenant files or other information that validates tenant data remotely without compromising PII.

We recommend that the Deputy Chief Financial Officer…In collaboration with all involved program offices, develop and implement a sampling methodology that allows for a sample size that reasonably allows for the testing of the complete payment cycle within the PIIA reporting timeframe.

Status

This recommendation was closed by HUD. However, OIG continues to object to that closure and identifies this as a priority recommendation. After HUD closed this recommendation, it informed OIG that it would not be able to produce estimates of improper payments in these programs for FY 2023 and projected to the Office of Management and Budget that it may not be able to do so until FY 2027, dependent on funding.

For several years, we have reported that HUD was unable to test for improper payments in these programs because the Office of the Chief Financial Officer (OCFO) was unsuccessful in working with the Offices of Public and Indian Housing, Multifamily Housing Programs, and the Chief Information Officer to securely collect program files needed to test payments. This year, OCFO reported that HUD was again unable to complete improper payment testing because it was delayed in implementing a secure platform designed to collect supporting data and documentation and also because of limited staffing resources with technical knowledge of the payment cycles. The lack of proper planning and coordination from leadership in HUD’s program and support offices has prevented HUD from addressing the root causes behind the failure to comply with improper payment laws.

Due to this, HUD OIG issued a management alert to the HUD Deputy Secretary entitled "Action Is Needed From HUD Leadership To Resolve Systemic Challenges With Improper Payments", on January 23, 2024. In response to the Management Alert, the Deputy Secretary stated that she would provide a plan in 30 days. On April 10, 2024, the Chief Financial Officer, Assistant Secretary for Housing, and Principal Deputy Assistant Secretary for Public and Indian Housing (PIH) stated their respective executives have been working together to develop a plan to accelerate HUD’s ability to produce statistically valid estimates. With respect to project-based rental assistance (PBRA), HUD plans to use ongoing data collection for fiscal year (FY) 2023 tier 1 and tier 2 payments to develop a statistical estimate in FY 2024. With respect to PIH-TBRA, in lieu of pursuing an estimate for the FY 2024 reporting cycle, PIH will focus on “its existing efforts to enhance PIH [IT] systems”, which HUD considers to be a more strategic use of resources. It is not clear from HUD’s response what PIH will do differently than it already had planned prior to the management alert as HUD did not provide a detailed plan or timeline for OIG review. As of June 21, 2024, a detailed plan or timeline has not been provided.

Analysis

HUD has been challenged with developing a compliant sampling methodology that can test the full payment cycle and that can be executed within the required timeframes. HUD’s sampling methodology did not test the full payment cycle. Further, the associated sample testing and statistical estimation of improper payments could not be completed in time for the required annual reporting of improper payment estimates in the Agency Financial Report (AFR), normally issued in November. To fully address this recommendation, the sampling methodology should test the full payment cycle, and the associated sample testing and statistical estimation must be completed in time to be included in the AFR.

Implementation of this recommendation will result in HUD better safeguarding taxpayer dollars and decrease improper payments.

Consult with OMB on the appropriate reporting for the untested portions of the payment cycle (such as reporting as unknown) and report accordingly.

Implement a procedure, which ensures that future improper and unknown payment testing that does not test the full payment cycle is reported in accordance with OMB’s guidance.

Coordinate with OMB to ensure that all of HUD’s data posted on OMB’s PaymentAccuracy.gov are accurate, including data before fiscal year 2021.

Update its procedures to include verifying all HUD data on PaymentAccuracy.gov immediately after the data are published on the public website to ensure that all data are accurate and if not, coordinate any corrections with OMB.