We are required to audit the consolidated financial statements of the U.S. Department of Housing and Urban Development (HUD) annually in accordance with the Chief Financial Officers Act of 1990 as amended.  This report supplements our independent auditor’s report on the results of our audit of HUD’s principal financial statements for the fiscal years ending September 30, 2015 and 2014.  Provided are assessments of HUD’s internal controls and HUD’s compliance with applicable laws, regulations, and governmentwide policy requirements and provisions of contracts and grant agreements. 

We issued a disclaimer of opinion on HUD’s consolidated financial statements for fiscal years 2015 and 2014 (restated).  We took this action because there were many unauditable material financial statement line items due to departures from U.S. generally accepted accounting principles (GAAP) and other deficiencies in internal controls over financial reporting.  This report provides additional details on five material weaknesses, five significant deficiencies, and five instances of noncompliance with applicable financial management laws and regulations.  Details of the results of our audit of HUD’s component entities, the Federal Housing Administration and Government National Mortgage Association (Ginnie Mae) can be found in separate audit reports. 

Primarily, HUD (1) did not account for the Office of Community Planning and Development’s formula grant programs’ commitments and disbursements in accordance with GAAP, (2) inadequately accounted for assets and liabilities resulting from the Office of Public and Indian Housing’s (PIH) cash management process, (3) lacked proper validation procedures for its grant accrual estimates, (4) could not provide auditable data to support Ginnie Mae’s budgetary resources, and (5) lacked adequate financial management systems to ensure accurate and reliable financial reporting.  Our findings reflect deficiencies in HUD’s (1) control environment, (2) internal controls over and oversight of Ginnie Mae, and (3) oversight and the lack of a senior assessment team or equivalent to assess financial transactions and their compliance with GAAP. 

Most significiantly, we recommend that HUD (1) properly account for all financial transactions occuring from PIH’s cash management process in accordance with U.S. GAAP and transition as much as $507.5 million in excess funding, (2) validate grant accrual estimates to ensure reliable and accurate financial reporting, and (3) implement adequate resources and controls to ensure the reliable and accurate reporting of Ginnie Mae’s budgetary resources.