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.